Austria nationalised Hypo Group Alpe Adria (HGAA) today to avoid a collapse that could have undermined trust in banks in eastern Europe and cast doubt over Austria's and Germany's backing of state-owned lenders.
Austria is taking over 100 per cent of Hypo from BayernLB, insurer Grawe and the Austrian state of Carinthia, after shareholders agreed to inject around €1 billion of capital, finance minister Josef Proell said.
"The risk situation of this bank has created an enormous threat to Austria in the past days," Mr Proell said today after a weekend of crisis talks with his counterpart from the German state of Bavaria, Georg Fahrenschon, and the other shareholders.
"We jointly could avert this threat," he told journalists in a news conference this morning.
Mr Proell said European Central Bank president Jean-Claude Trichet had been involved in the talks over the weekend.
The owners will give away their stakes in Hypo to Austria and provide an additional round of capital. BayernLB, which is owned by Bavaria, will give an additional €825 million in capital, and leave €3 billion of liquidity in the bank.
"With (this rescue) the risk of an insolvency, with all the negative consequences for the bank's customers, has been averted," Austrian central bank chief Ewald Nowotny said in a statement.
He said the rescue had also avoided "a massive risk to the entire Austrian economy at a critical point," and said the bank must urgently restructure because of its important role in Austria and Southern Europe.
BayernLB said it would sell its 67 per cent stake in HGAA to Austria for €1, a move that will lead to writedowns of €2.3 billion for the Munich-based lender, but it said it did not need additional capital to shoulder the writedowns.
It was the second nationalisation of an Austrian bank during the global financial crisis after Austria bailed out troubled municipality lender Kommunalkredit last year.
Hypo, Austria's sixth-biggest bank, which is also a major lender in the former Yugoslavia, is creaking under up to €1.7 billion.
Reuters