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.