Ireland Is not Austria.

Remember when we guaranteed our banks? And we were told we had to honour that? The Promissory Note? remember?…. you had your blue jumper on ? Good. Keep reading….

Hypo Alpe Adria, a regional lender rescued by the Austrian government in 2009, and which has now sprung another, €800m black hole… and it is just possible that the name is going to be as memorable as Amagerbanken or SNS Reaal for European banks’ bondholders. Potentially it may be a less than bucolic precedent for sovereign debt, too.

That’s because of another thing about Hypo Alpe Adria (or HGAA) — it has about €15bn of outstanding debt guaranteed by Carinthia’s state government. Carinthia had, at the end of 2012, total debt of €2.6bn with expected receipts of €2.15bn versus expenditure of €2.28bn. Quite a contingent liability. It perhaps explains why there’s now talk of writing down the debt. Bank bail-ins are increasingly the norm of course, but the state guarantee would be a different proposition to Amagerbanken (which affected senior debt) or SNS (which wiped out subordinated debt).

This is only one possible scenario for HGAA (the more mainstream path being discussed by a task-force is a bad bank of some sort) and it appears to have been introduced in a report by Oliver Wyman. It would apparently involve a “voluntary” exchange of the bonds guaranteed by Carinthia into debt guaranteed by the Austrian sovereign itself — but in a ratio of 3 into 2, wiping off €5bn. Oliver Wyman declined to comment to us.

via Bondholder Hypo-thermia, in Austria | FT Alphaville.

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One thought on “Ireland Is not Austria.

  1. ABhoysVoice

    …Interesting. Although still looking at transferring the bank debt to the sovereign, there is at least SOME effort to shrink the debt shouldered by the people.

    Is there a need for a reminder on what we (or in truth, our supposed representatives) done, or even tried to push for?

    Reply

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