No More Failures Ever As Moral Hazard Goes Global: Austria's Hypo Alpe Adria Nationalized

Tyler Durden's picture

The only way to maintain the global Ponzi bubble as insiders cash out in ever increasing droves has now become a wave of rolling bailouts not only in the US, but across the entire world. The latest little casualty that could: Austria's Hypo Group Alpe Adria, the country's fifth largest bank by assets, which was nationalized ealier in a €5.5 billion bailout package. But ignore that: Europe is long and strong, with no bank balance sheet assets writedowns, a flourishing export economy, a surging currency and unprecedented growth ahead of soon to be (non) bankrupt Eastern European and Baltic states. The sarcasm in the previous statement is certainly not lost on the Austrian National Bank which said that "the whole Austrian economy has been able to avert a massive threat at a critical moment in time." No further commentary needed. Ben Bernanke's Moral Hazard world tour soon coming to an insolvent bank near your cottage.

More from Dow Jones:

The deal required the personal intervention of European Central Bank president Jean-Claude Trichet, who called both Austrian Chancellor Werner Faymann and Horst Seehofer, governor of the German state of Bavaria, to ensure that the bank, 67% owned by Bavaria's BayernLB, was rescued.

Trichet's involvement underscores enduring worries in the highest circles about the stability of Europe's banking system, after the crippling losses suffered by many banks in the financial crisis. With only EUR43 billion in assets, HGAA is by no means a large bank from a continental perspective, and operates mainly in southeastern Europe, outside the euro zone and even the European Union.

The deal averts an insolvency that would have strained Austria's domestic banking market in its own right, and dealt a possibly damaging blow to the standing of other Austrian banks. They expanded rapidly in central and eastern Europe over the last decade, and are now accordingly stretched by problems with heavy loan and foreign-exchange losses in those markets.

The risk of contagion spreading from either the Austrian or the Balkan banking market appears to have been considered too large to ignore.

Before an emergency shareholder meeting at the weekend, neither Bavaria, nor the Austrian federal government, nor HGAA's minority Austrian shareholders had been willing to inject extra funds to keep HGAA alive.

"In the end, ECB President Trichet called Chancellor Faymann, to make clear the seriousness of the situation," an informed source said, requesting anonymity.

Trichet and Deutsche Bundesbank president Axel Weber also called Bavarian Governor Horst Seehofer to urge him to agree to a deal, people in the banking world told Dow Jones. The Bundesbank confirmed only that it "had participated in the background" to finding a solution.

Under the terms of the deal, the Austrian federal government will assume 100% of HGAA's equity and underwrite EUR450 million in new equity, while the former shareholders will waive claims of just over EUR1 billion, and continue to extend EUR3.4 billion of liquidity support to the bank in place. Austria's largest banks, including UniCredit SpA, Raiffeisen Zentralbank and Erste Bank AG, also agreed to provide another EUR500 million in contingency liquidity support.

And the sad summation:

Meanwhile, in Vienna, the only Austrian institution big enough to save HGAA was a federal government that had already bailed out the country's banks with EUR90 billion of its own taxpayers' money.

We wish those without the Chairman's printing presses all the best as they now seek to slavage bank after bankrupt bank in order to prevent the disclose of the global emperor's complete and absurd nudity.

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lovejoy's picture

As long as the National Govts can fund themselves they can, and probably will, keep doing this indefinitely.


should austria or any other national gov not be able to fund itself it all comes apart.

Anonymous's picture

nope. we are always ready as a lender of last resort

Anonymous's picture

If every single govt in the world plays along, how long could they keep it going?

Internet Tough Guy's picture

Not much longer. Read 'The Emperor has no Clothes' to see how things end.

Anonymous's picture

You cannot tell the people that the Emperor's corpse is rotting if they are staring at the

"New D' Tey of an Emperor: a planetary economic system too big to succeed"

VegasBD's picture

Until we the people stop it.

But not today, we have to see who wins Survivor this week.

SilverIsKing's picture

Isn't Obama getting ready to initial another $1.1 Trillion in spending?  It's not front page news???  I guess the first quadrillion dollar spending bill will be newsworthy but anything less isn't worth anyone's time.

Selah's picture

A Trillion $$$ is so "pre-Obama"...

Galois's picture

The best part is the reaction of the fimbag (the institution which manages governmental aid to Austrian banks):

Die Institute des Landes müssten durch Zusammenschlüsse wettbewerbsfit gemacht werden, sagte Hannes Androsch, Vizepräsident der Finanzmarktbeteiligung AG (Fimbag), am Wochenende. Als Vorbild verwies er auf den westlichen Nachbarn: "Österreich hat sechs systemrelevante Großbanken, die Schweiz nur zwei." Ähnlich äußerte sich Zentralbankchef Ewald Nowotny. Bislang sperren sich die Großbanken gegen Fusionen.

coarse translation:

"The banks of the country must be merged to become competitive", Hannes Androsch, vice president of the fimbag said. He named the western neighbour countries as a model: "Austria has six large banks which pose systemic risk. The Swiss have only two such banks." Up to now the large Austrian banks oppose the idea of a merger.

Riiiiight. Great idea.

Those of you who like to excercise their German may find the whole article there:


serendipitous_one's picture

Höchste Zeit, daß Kemmer rausgeschmissen wird!   Wunder-fucking-bar!

MsCreant's picture

I don't think I can stand reading any more of this stuff today. Earth-- Planet Fascism

bugs_'s picture

"worries in the highest circles...."

trav777's picture

spending 2x receipts these days...not seeing the growth out there to backstop this new debt.  Only recourse is the printing press...leverage will continue to increase as real yields continue to decline for the simple fact that there isn't MUCH out there anymore that is economic!

I mean, in the aggregate, where the hell do you "invest"?  The only growth industry for the past 10 years has been in finance and derivatives thereon.

msorense's picture

What happened to "Austrian economics?"  They are now learning from Ben Bananake.

Neo of Zion's picture

I was going to post about the irony of "Austrian School of Economics" now...the Mises Institute must be going apocalyptic today.

Anonymous's picture

The reason why our (EUR) currency is strong is because we don't have a 1.4 trillion (!!!) debt!

carbonmutant's picture

Propaganda, that's the key. We need more propaganda...

Anonymous's picture

You say "insiders cash out in ever increasing droves", but can you please provide names, dates and amounts? I keep reading about those "insiders" and all of their selling... it's clearly open season on "insiders"... but your statement would have more punch if it included proof.

Anonymous's picture

Hypo is relatively a tiny bank in austria. Erste, Uni, and Raiffeissen are about 90% of the deposits.

AnonymousMonetarist's picture

New York Times
May 18th, 1931

The Vienna Stock exchange remained fairly calm this week in the face of the news regarding the Kreditanstalt. The comment, is made, however, that the existing valuation of most shares almost excludes further depreciation. The Vienna money market continues easy, with offers of short-term foreign credits from America at 3 and one-half per cent, but with little demand for them.

The troubles of the Kreditanstalt are quite unanimously ascribed here to the unsound policy pursued in 1929, when the crippled Bodenkreditanstalt was attached to the larger concern. But the aggravated crisis in Austrian industry has necessarily also had its influence. As a result of the peculiar development of Austrian bank affairs, both of these leading banks had well-nigh become owners of a large portion of Austrian industry.

Losses in such industries as metals, textiles, and petroleum, with many others, thus became the immediate losses of the Kreditanstalt. That institution had not suffered loss through use of its funds in speculation, but the heavy fall in prices for immense parcels of Austrian industrial shares held by it have reacted on the balance sheet, thus impairing the bank's capital.

Under the ordinary operation of Austrian law the bad showing of the statement on which Baron Rothschild, president of the Kreditansalt, insisted, would have made the winding-up of the bank inevitable. Through this process all actual liabilities would have been covered, but on the other hand nearly three-quarters of Austrian industry would have been brought to a standstill.

The contract with the governement, however, as already passed by Parliment, provides that the State together with the national bank will cover 69,000,000 schillings of losses "à fond perdu," (translation : without any chance of getting back -AM) while 31,000,000 will be made up through reduction of the present share capital and use of 40,000,000 schillings from the reserve fund. In all, the State bank and the Rothschilds together acquire 83,000,000 schillings of the new shares. Thus, after covering losses, the share capital will amount to over 170,000,000 schillings, of which the State and national bank will own 47 percent. 

Since the Rothschilds and the chief shareholders this time had required that the worst should be shown by the balance sheet drawn up, it is not thought that further losses will become evident in the near future. The fact which will cause difficulty is that the Socialists welcome the compulsory of State capitalism, with control of almost all production by the government, and wish to maintain it, whereas the "bourgeois" parties and financial circles desire the speediest possible sale of the credit shares held by the State to an outside syndicate.