"Spectacular Developments" In Austria: Bail-In Arrives After €7.6 Billion Bad Bank Capital Hole "Discovered"

Tyler Durden's picture

Slowly, all the lies of the "recovery", all the skeletons in the closet, and all the bodies swept under the rug are emerging.

Moments ago, Austrian ORF reported that there have been "spectacular developments" in the case of the Hypo Alpe Adria bad bank, also known as the Heta Asset Resolution, where an outside audit of Heta's balance sheet exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill, the Austrian Financial Market Authority said.

As a result, according to Reuters, the bad bank that was created in the aftermath of the Hypo collapse, is itself about to be unwound, as the bad bank itself goes bad!

"Austria's Financial Market Authority stepped in on Sunday to wind down "bad bank" Heta Asset Resolution and imposed a moratorium on debt repayments by the vehicle set up last year from the remnants of defunct lender Hypo Alpe Adria."

In short: Austria just cut off state support of what was until this moment a state-backed, wind-down vehicle and a key pillar of trust in what was already a shaky financial system.

Not surprisingly, today's shock announcement comes a week after Austria's Standard reported that up to a five billion euro impairment at Heta would take place, a report which the Finance Ministry called "pure speculation" and noted that the Bank was in good health. According to Standard, among the reasons for the massive capital shortfall was the plunge in collateral as a result of the continuing crisis in South East Europe which meant that the value of "real estate in South East Europe, shopping centers and tourism projects, deteriorated massively" driven largely by the appreciation of the Swiss Franc. "As a result, the volume of bad loans has increased significantly."

Everyone was wondering who the first big casualty of the SNB's currency peg failure would be. We now know the answer.

Further from Reuters, the finance ministry confirmed this in a statement, adding Heta was not insolvent and that debt guarantees by Hypo's home province of Carinthia and the federal government were unaffected by the move.

The problem is that going forward that nobody knows who insures what, what various other state and quasi-state guarantors suddenly unclear as to who is responsible for what: the province of Carinthia guarantees back €10.7 billion worth of Heta debt. The federal government backs a 1 billion euro bond issued in 2012 that the ministry said would be honored in full.

As a result of the "sudden" capital deficiency, there will be a moratorium on repayment of principal and capital lasts until May 31, 2016, giving the FMA time to work out a detailed plan to ensure equal treatment of all creditors, the FMA said in a decree published on its website.

Perhaps a badder bank to rescue the bad bank?

According to Reuters calculations, More than 9.8 billion euros worth of debt is affected, including senior notes worth 450 million due on March 6 and 500 million on March 20.

But the punchline, is that while the world was waiting for Greece to announce capital controls, or a bail-in over the past week, it was none other than one of the Europe's most pristeen credits (one which until recently was rated AAA/Aaa) that informed creditors a bail-in is imminent: "The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta - or "bailed in" - under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden."

Bloomberg confirms that the ministry announced that under new EU rules means creditors can be forced to share losses.

Of course, this being Austria, and the Creditanstalt, aka the bank which failed in 1931 under almost identical circumstances and set off the dominos that led to a global financial crisis which in turn bank fanned the flames of the Great Depression, also being Austrian, suddenly everyone is asking: "what just happened and what happens next?"

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Deathrips's picture

Digital Wildfire!!

 

Do you know whats in your wallet?

 

RIPS

Cognitive Dissonance's picture

Whoops there goes another rubber tree plant. Kerplunk!

ml8ml8's picture

Someone needs to explain to Austria that, once you take all the liabilities from regular but insolvent banks and put them into one "bad" bank, that you then own the bad bank and those liabilities and cannot disclaim them.  Surely that rule is written down somewhere?  Otherwise, who the hell puts their money into the "bad " bank?

 

layman_please's picture

In April 1931, Germany announced a customs union with Austria. France protested that such a union was illegal under the Treaty of Saint-Germain, by which Austria had promised to maintain its independence from Germany. The dispute was referred to the World Court, but in the meantime the French, to discourage such attempts at union, recalled French funds from both Austria and Germany. Both countries were vulnerable. On May 8, 1931, the largest Austrian bank, the Credit-Anstalt (a Rothschild institution), with extensive interests, almost control, in 70 percent of Austria's industry, announced that it had lost 140 million schillings (about 520 million). The true loss was over a billion schillings, and the bank had really been insolvent for years. The Rothschilds and the Austrian government gave the Credit-Anstalt 160 million to cover the loss, but public confidence had been destroyed. A run began on the bank. To meet this run the Austrian banks called in all the funds they had in German banks. The German banks began to collapse. These latter began to call in all their funds in London. The London banks began to fall, and gold flowed outward. On September 21st England was forced off the gold standard. During this crisis the Reichsbank lost 200 million marks of its gold reserve and foreign exchange in the first week of June and about 1,000 million in the second week of June. The discount rate was raised step by step to 15 percent without stopping the loss of reserves but destroying the activities of the German industrial system almost completely.

Tradegy and Hope, by Carroll Quigley, page 268

Stuck on Zero's picture

The sign says: "HypoGroup."  Does that mean they are "under capitalized?"

 

kliguy38's picture

selective beta test before the big show begins

cossack55's picture

"Austria? Lets put another bank on the barbie"

flacon's picture

Is this good for American stocks?

Pladizow's picture

Im picturing Arnold's face from the movie Total recal where he runs out of air on Mars.

Haus-Targaryen's picture

I am hoping this shit show can keep itself together for another week.  I've gotta buy a car, and would love to get good cheap liquidity while its still up for grabs.  

Manthong's picture

Anything Goes

Haircut anyone?

knukles's picture

How can a bad bank be bad?

unrulian's picture

How can a badder bank be badder..er than a bad ....bank?

SeattleBruce's picture

Welcome to the centrally planned extend and pretend!

Socratic Dog's picture

So buy a fucking used car.  One you can afford.  Pay cash.  Just don't tell any cop who stops you on your way to pay for it that you have some <<gasp>> money in your pocket.  Or does that only make you a terrist in the USSA?

 

Which is worse - bankers or terrorists's picture

Just get a car loan with a negative interest rate. 

 

IN AMERIKA, BANK PAYS YOU!

zeroheckler's picture

of course - eveything helps!

RaceToTheBottom's picture

More likely Bankschnitzel.  We are at the meat pounding stage.

 

Headbanger's picture

Is this the Black Swan event that starts the market crashing finally?

Headbanger's picture

Nahhhh..  It's REAL shit!

perchprism's picture

We bailed-in some folks...

Bluntly Put's picture

No, that would imply something bad for the bull market. But we all know what whenever anything bad happens to the market the central banks rescue us from the consequences of our actions.

So, anything that could possible infer something bad for the market would be bad for the market making it good for the market. There just isn't anything that could possibly happen that would be bad for the markets since that would in fact be good for the markets, a dichtomy of finance which we know is a statistical improbability.

Just print more credit that acts as money and double down.

Always double down.

.

Realname's picture

They just need a hypodermic syringe with some capital injections. Tap that vein!

Tall Tom's picture

We bailed in some folks.

Al Tinfoil's picture

HypoGroup is a medical clinic where you go for a shot of heavy-duty tranquilizer.  An anaesthetic for all monetary concerns.

glenlloyd's picture

They're running out of rugs to sweep this shit under...

popocatepetl's picture

140.000.000 Austrian Schilling (ATS) were a bit more than EUR 10.000.000.

EUR 1,-- = ATS 13,7603 

Socratic Dog's picture

Might be worth a bit more than that today.  Perhaps that what hat he was saying?

_Doomsayer's picture

It's amazing to me how the Rothschilds and their ilk have never been forced to drastically change their tactics. The bank moves are the same, the economic manipulation is the same. the false flag attacks are the same, the propaganda is the same. They just repeat everything on a 20-40 year cycle. How pathetic does that make the masses for buying this shit every time?

Flagit's picture

The more I learn of the events that led to WW2, the more the playbook becomes apparent. They are still running off of the First Edition. There does not look to be a revised edition ever printed.

1. gang up and kick the shit out of a country.

2. redraw the geographical maps to separate millions of people from their homeland.

3. butcher those people in an attempt to make the targeted country "invade" to save their people.

4. declare said country "evil" and invade with a world wide coalition of banker controlled serfs.

5. divvy up the spoils between the puppets, and create a new target. 

Al Tinfoil's picture

But, but, Butt - Things are so much better arranged now.  We must be safer than the Europeans were in 1931.  

Let's see:

1. Customs Union between Germany and Austria.  Now there is a customs union among all EU members.  Safer?

2. Each country in the EU has its own Central Bank and the EU has its European Central Bank which dictates monetary policy for all in the Euro Zone.  Plus there are many retail banks in each country, all dependent on their Central Banks, which are dependent on the European Central Bank.  There are many cross-guarantees among the banks, meant to make each more secure, but spreading insecurity around.  And then there are the cross-guarantees between the ECB and US Federal Reserve.  The whole fleet is roped together so all float together or all sink together.

3. Bankers and markets are so much more sophisticated than in 1931 that such meltdowns as 1929 and 1931 could never happen again.  Why, the USA enacted Glass Steagall to separate retail banks with customer deposits from insurance companies with policy-holders' premium payments on hand from Wall Street investment banks and speculative trading.  

What's that?  Glass Steagall was repealed in 1999?  What happened next?  Oh, yeah, meltdown in 2008 and contagion in Europe in 2010.  

But computer algorithms were touted as being able to predict risk and allow risk avoidance.  Oh, well, even quants and algos can make mistakes.

4.  Moves by the EU have made all countries in the Euro zone safer by having all sign guarantees of each other.  See "European Financial Stability Facility ("EFSF")" of 2010, and "European Fiscal Compact" or "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union", also referred to as the TSGG or "Fiscal Stability Treaty", which came into force on April 1, 2014.  (April Fool's Day, 2014, Hmmmm....). The Fiscal Compact required all Euro zone members to keep fiscal deficits below 3%, and debt to GDP below 60% (or move at a predetermined minimum rate to reduce debt ratio accordingly).  France and Italy (let alone Greece) are complaining that the ratios cannot be met.  

After the EFSF was announced, an analyst looked at it and pointed to a basic flaw  - if a weaker member of the Euro zone defaulted, the remaining guarantors were left bearing liability for more debt, risking the next-weakest members, causing some of them to default, eventually leading to a cascade of defaults in which the richest members of the Euro zone were left bearing all the liabilities of all those who had defaulted, and risking the financial stability of even the richest members of the Euro zone.  

5. Tying all members of the Euro zone together with one climbing rope thus risks all members of the Alpine climbing team when one member loses its footing.  Annnd.....They're gone.

6. The 2010 meltdowns of the PIIGS were "remedied" by "bailouts" funded by the Troika of ECB, IMF, and EC.  But the "bailout" funds went mostly to purchase worthless sovereign bonds issued by the PIIGS and IOUs issued by banks in the PIIGS.  In the case of Greece, at least, those sovereign bonds and IOUs were held mostly by French, German, and Italian banks, and if the banks were forced to write them down to market value, the banks would be insolvent. So the bailout funds "for Greece" went mostly to French, German, and Italian banks, while the Greek treasury shouldered the responsibility for payment of all principal and interest, and austerity was imposed to make loan repayments first priority of government budgets.  The Troika put the bonds and IOUs on their balance sheets as valuable assets, even though it was clear that they could never be paid off.  Worse, austerity has plunged Greece, Portugal, Spain, and Ireland into depression, while Italy sails on like the Titanic. 

6. For a year or more, Mario Draghi of the ECB has been pushing for ECB Quantitative Easing, saying that it would lead to renewed economic growth in Europe (very doubtful, given the result of extensive and failed QE attempts in Japan and the USA).  Draghi now has his dream realized, with ECB QE to begin this month, purchasing bonds from Euro zone central banks and even corporations (but not Greece, at least before July 2015).  This effectively gives each Euro zone country a press to print Euros up to the amount that the ECB will pay for bonds from that country.  If they can get away with it, the printing countries should issue bonds with zero or negative interest rates (ZIRP or NIRP compliant) with maturity dates set sometime in the next century. EXTEND AND PRETEND, BABY!

Now it seems that Draghi's QE may be just the thing necessary to stem the hemorrhages to the banking systems.  I suspect Draghi foresaw the current problems and wanted to position the ECB to cover the emergency liquidity requirements that surely would come.  This will allow the illusion of liquidity and financial soundness to be maintained in the Euro zone, or so it is hoped. Heck, if it works for the USA, why not in Europe.

And if all else fails, the banks can now appropriate all the deposits that their customers think they have safely stowed in the banks.  Cyprus was a successful test run, and legislation is in place to allow customer bail-ins.  Now it's a race between depositors and banksters to grab the money.  "Aaaannnndddd They're Off!!!!!!!!  At the first post, depositor Number One leads by a nose, having stolen an early lead at the ATM overnight......" 

 

Flagit's picture

A few days ago someone posted a link to a movie on youtube. Titled, Adolf Hitler: The Greatest Story Never Told. Talk about long views/reads(much text). Six hours or three, 2 hour versions. It attempts to tell the story of Hitler in a positive light, and how the only thing they did wrong is shake off the yoke of the jewish banker. A nearly impossible task considering the little maggots are embedded in every rotting branch of Government worldwide. It's what they DO!

What is doesn't mention is what happened to the Brownshirts, how the Ghettos were formed, or even the powers behind the people that backed him into power.

There must be a good reason the Zionists hated him as much as they did.

 

Colonel Klink's picture

Ding, ding, ding, we have a winnar!  Both WWI and WWII were caused by the moneychangers of the time, who just so happened to be alive and well (their money and bloodline) and operating today.

Flagit's picture

 

layman_please , did you read the full or the edited version?

From Amazon,

Matt H. Arsenault says: this is not the full version of the book btw..........the 1st half was destroyed by the publishers...who wont republish. Thats why old original full copies go for hundreds of dollars online, Quigley will even tell you this himself, you can find the interview online.

 

Bateman says: "Quigley will even tell you this himself, you can find the interview online"

http://www.youtube.com/watch?v=OxVlBVXwU5k -- 8:45 on

layman_please's picture

currently i'm reading the one that is widely available from https://archive.org/details/TragedyAndHope_501 , and elsewhere, on my kobo but i have also read the original 1966 print which i found at my local library, and which previously belonged to the world bank (they have stamped it, no idea how this copy ended up here). i will check the original print against the ebook to see if i can find any significant differences. also check http://www.tragedyandhope.com/which-versions-of-tragedy-and-hope-are-the...

kaiserhoff's picture

I started working out of cash and into inventory and silver about six months ago.

First good decision in a looong time;)

Hulk's picture

Same here Hoff. A bit nerve racking converting so called safe assets, but I just can't see a path where this system winds up on its feet...

highly debtful's picture

You must have nerves of steel, I started doing that six years ago. 

Jack Burton's picture

Frankly, I have never understood how a Bad Bank can take all the bad liabilities and remove them from the system, allowing failed banks to off load the junk and continue on.

By the laws of physics, the losses still exist, only in a different place. The bag is now held by this Bad Bank, how does it meet these bad debts and obligations that bag holders must be screaming for to be made good.

Latina Lover's picture

Jack Burton, an excerpt that may somewhat enlighten:

"Pundits talk about the toxic assets in the banking system as if somehow they were infectious, and the good assets would become infected by the bad assets. One envisions the mould on one piece of cheese taking up residence on an adjacent piece in the frig. Or that somehow if the bad, hard-to-value, assets were moved somewhere else, both sets of assets would be easier to value and the banking system somehow more sound.  We don’t think the bad assets are infectious."

http://www.voxeu.org/article/goodbad-bank-debate-new-proposal

Burdened by post graduate degrees in Business and Economics, I used to buy this BS. Instead, I now realize it is just another way to extend the ponzi, by convincing gullible investors that the problem is magically solved.

Thirst Mutilator's picture

  "Frankly, I have never understood how a Bad Bank can take all the bad liabilities and remove them from the system, allowing failed banks to off load the junk and continue on."

 

I'm in a similar position... I've never understood why, for example, beginning at sundown on Sunday, September 13, this year, & culminating at sundown on Tuesday, September 22, I need to flagellate myself in Awe & Repentance about nothing in particular that I've done, perpetrated upon humanity, or plan to [aforementioned] in the process...

 

Color me DAFT!!!

disabledvet's picture

Simple actually...as the currency collapses the "meaning" of the debt disappears.

 

Unless of course you have a DEFLATION.

 

Then you'll have to mark the debt to the market lest people lose confidence in the entire banking system...and indeed the country itself.

 

Hank Paulson® also took Fannie and Fred "off balance sheet" in effect making the entire war effort pay for DC's malfeasance...which the US Navy has now discovered is indeed true as defense PROCUREMENT has increased ten fold in a matter of just a fiscal year.

 

Never too many Marxists in this world.  "Quantity is a quality all its own."

 

So even very small things (an "i-phone" por ejemplar) if produce in sufficient quantity can indeed "create their own market.". In the 90's the term was " scalability.". That's Karl Marx.

U-P-G-R-A-Y-E-D-D's picture

Totally superflouous mention of Marx.  Nothing about what you described can be considered "Marxist" other than the fact that you dislike it.