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An Austrian Province Just Requested A State Bailout

Tyler Durden's picture




 

One month ago we wrote about the ripple effects of the "mini-Greece going off in the heartland of Europe", referring of course to the Viennese black swan, the bailed-in implosion of the Austrian Heta bad bank which nobody had anticipated because the numbers were so thoroughly cooked, nobody had even the faintest clue just how bad the truth was. We said that "while the acute pain came and went for Heta bondholders who have seen a nearly 50% loss in just a few short months, the bigger and far more diffuse pain is only just starting.... The first casualty: the beautifully picturesque southern Austrian province of Carinthia."

 

 

As it was revealed in late March, the issues for Carinthia, the home province of doubly defunct lender Hypo Alpe Adria, is that the Heta bonds were guaranteed by the state of Carinthia which is now liable for the bail-in.

The problem is that Carinthia guarantee was equivalent to €10.2 billion, or nearly five times the state's 2014 operating revenue.  As the Telegraph summarized it "what the Austrian government is doing is cutting loose an entire region, rather in the way the federal authorities in the US allowed Detroit to go bust a number of years ago. It’s a mini-Greece going off in the heartlands of Europe."

Carinthia's budgeted revenue in 2015 is just €2.36 billion, and as such the southern province of 556,000 would be unable to honor the guarantees if they came due now or in a year’s time.

Carinthia was then promptly downgraded by Moody's from A2 to Baa2 with the rating agency stating that "the downgrade reflects an increased susceptibility to event risks, including litigation from Heta's bondholders and further actions by the FMA, and greater than anticipated shortfalls of Heta's assets. All these factors could lead to a crystallization of a significant portion of Carinthia's guaranteed debt. This amount could exceed Carinthia's liquidity resources, likely lead to increased financial leverage and could require some form of extraordinary central government support."

We summarized this unexpected outcome as follows: "We now have a waterfall bailout chain whereby the state guaranteeing the debt of the insolvent entity that guaranteed yet another insolvent entity, will itself need to be bailed out by the sovereign, Austria! Or perhaps not: Finance Minister Hans Joerg Schelling has said repeatedly that the Austrian government isn’t liable to cover Carinthia’s guarantees."

Herr Schelling's warning is about to be tested.

Yesterday, Carinthia officially asked Vienna for financial support, saying it will run out of money by the beginning of June without external help Reuters reports.

The rest of the story is already known to regular readers:

Carinthia provided debt guarantees for years to fuel Hypo's rapid expansion before the practice was stopped in 2007, but the last ones do not expire until around 2017.

 

With an annual budget of 2.2 billion euros ($2.36 billion), Carinthian officials have said the province cannot honour nearly 11 billion euros of backing for Hypo debt that creditors facing a "haircut" could demand.

 

Adding to the province's woes, ratings agency Moody's downgraded Carinthia last month to one notch above junk grade, making it more difficult to borrow in the open markets.

Carinthia's cash needs are tiny by global insolvency standards: "In the current financial year, Carinthia needs 340 million euros and is hoping for loans from the capital, a spokeswoman for the province said. Carinthian politicians are meeting Chancellor Werner Faymann and Finance Minister Hans Joerg Schelling in Vienna on Thursday.

So while everyone is eagerly awaiting to find out on what day Greece runs out of (confiscated) money, one of Austria's provinces - a country that is considered a pristine credit - may have beat the Mediterranean nation to the punch:

The spokeswoman said Carinthia would run out of money in June without help, confirming local media reports. No Austrian province has ever gone bankrupt and there is no legislation on how to handle such an event.

And to think all of this could have been avoided if only Carinthia had used any spare cash it has to just BTFD.

 

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Fri, 04/24/2015 - 15:17 | 6027379 knukles
knukles's picture

Well then, new and uncharted territory ripe for Goldman Advice

Fri, 04/24/2015 - 15:35 | 6027454 AIIB
AIIB's picture

The hills are ALIVE, with the sound of money printing presses

Fri, 04/24/2015 - 15:59 | 6027579 MonetaryApostate
MonetaryApostate's picture

European Implosion in 3... 2.... 1....

Fri, 04/24/2015 - 16:07 | 6027600 Haus-Targaryen
Haus-Targaryen's picture

I'd be okay with the Germans bailing out the Austrians if they can dissolve the Southern German/Northern Austrian border, and *ahem* reacquire Austria.  

Austrians win because they get the Autobahn. 

Germans win as it slows Germany's population decline.  

Win-win for everyone involved except for Autrian politicians and self-loathing Germans. 

Fri, 04/24/2015 - 16:42 | 6027741 Harbanger
Harbanger's picture

Keep dreaming.  Germany needs their own bailout.  Who bailed them out last time?

Fri, 04/24/2015 - 17:02 | 6027799 Publicus
Publicus's picture

Why not? It costs nothing to print money.

Fri, 04/24/2015 - 16:48 | 6027759 Wolferl
Wolferl's picture

Haus, Austria IS Germany and always was. And it´s much better to have more than one or two German state or even more within Europe.

Fri, 04/24/2015 - 16:51 | 6027768 Harbanger
Harbanger's picture

Austria is broke but at least it's not Greece ;)

Fri, 04/24/2015 - 17:55 | 6027935 COSMOS
COSMOS's picture

Yep, weather is better in Greece and it has some of the world's best beaches.  Sucks to be broke in Austria.

Fri, 04/24/2015 - 19:51 | 6028215 Arius.
Arius.'s picture

it looks like he lost Hans on "austria is germany" ... no bones :) .... LOL

Fri, 04/24/2015 - 16:13 | 6027629 Harbanger
Harbanger's picture

Where's Schwarzenegger?

Fri, 04/24/2015 - 16:26 | 6027691 Kirk2NCC1701
Kirk2NCC1701's picture

He's not a "provincial" kind of guy.

He won't be back.

Fri, 04/24/2015 - 20:32 | 6028293 Arius.
Arius.'s picture

well, it is against the republican principles "to be back" ... play - pay

Fri, 04/24/2015 - 22:55 | 6028590 capital one
capital one's picture

I freelance over th? internet and earn about 80-85$ an hour. I was without a job for 7 months but last month my paycheck with big fat bonus was $15000 just working on my computer from my home for 5-6 hours. Here's what i have been doing... www.globe-report.com

Fri, 04/24/2015 - 15:19 | 6027392 knukles
knukles's picture

Why does this remind be of Orange County and Bob Citroen?

Fri, 04/24/2015 - 15:35 | 6027458 AIIB
AIIB's picture

citrus FRUITS?

Fri, 04/24/2015 - 15:50 | 6027531 taketheredpill
taketheredpill's picture

plus Gibson Greeting cards...and P&G using rate derivatives to hedge their soap exposure...1994 was an interesting year.

 

Fri, 04/24/2015 - 15:21 | 6027394 ebworthen
ebworthen's picture

The cancer of financialization and Central Bank profligacy benefiting their bankster master's gambling and profiteering at the expense of the populace begins to spread to places it has never been.

Fri, 04/24/2015 - 16:24 | 6027682 debtor of last ...
debtor of last resort's picture

True. Been there 3 times, local farmers at the bar, drinking schnaps together. It's 'schon'...

"Und so soll es immer sein"

"That's the way i like it"

Translation from the hart

Fri, 04/24/2015 - 15:20 | 6027398 pods
pods's picture

The hills are alive........................

Pretty picturesque though. Downright heaven compared to the USA where 3500 sq ft McMansions on 0.1 acres fill the landscape.

Go figure a fucking bank is behind this one too.

pods

Fri, 04/24/2015 - 17:56 | 6027937 COSMOS
COSMOS's picture

Yep the hills are alive with African immigrants making their way across.

Fri, 04/24/2015 - 15:21 | 6027402 Tinky
Tinky's picture

Was ist das?

Fri, 04/24/2015 - 15:23 | 6027408 The Bell Rang
The Bell Rang's picture

FEED MEEEEEEEE. MOARRRRRRR

Fri, 04/24/2015 - 16:20 | 6027656 Max Steel
Max Steel's picture

RYBACK .

Fri, 04/24/2015 - 15:28 | 6027410 farmerbraun
farmerbraun's picture

I have a couple of million in borrowing which rolls over this month.

As at today the interest rates on offer to me are :-

Term %pa

Floating 8.05
1 mth 7.10
3 mths 7.10
6 mths 7.09
1 yr 6.92
2 yr 6.98
3 yr 7.09
4 yr 7.27
5 yr 7.41

Yeah , kind of flat!

O.K. team Tyler . . . what's my best bet?

For the sake of context , it's coming off a three year term at 6.54%.

Fri, 04/24/2015 - 15:34 | 6027447 farmerbraun
farmerbraun's picture

C'mon Knucks ; Walkure et al, what would you choose?

Fri, 04/24/2015 - 15:54 | 6027550 walküre
walküre's picture

the 3 yr term is up from 6.54% to 7.09% or a little over 8% more in payments

can you handle that?

Fri, 04/24/2015 - 16:30 | 6027708 farmerbraun
farmerbraun's picture

No sweat at all.

Fri, 04/24/2015 - 16:35 | 6027715 Harbanger
Harbanger's picture

Big mistake to take any financial advice from the comment section.  That being said, If interest is tax deductable in your location, you always go with longer terms.  If not, those rates will eat you alive in this deflationary environment.

Fri, 04/24/2015 - 16:43 | 6027745 farmerbraun
farmerbraun's picture

Interest is tax deductible.

I'm just listening , and fishing for ideas on where it's going right now , and in say five years.

It's more economic thoughts , than financial advice.

Fri, 04/24/2015 - 17:31 | 6027872 Urban Redneck
Urban Redneck's picture

any prepayment penalties?  if so, how many points? what currency is the loan denominated in?

what is the pricing volatility of your product(s) and is your business geared towards steady off-take contracts?  if so are your prices hedged? and since most AG products aren't denominated in NZD is currency risk hedged?

 

...without knowing the answers - my .02 inclination would be 3yr.  If you can refi cheaply - you could go out to 5yrs, but if you realistically have the cash flow locked into to deal with adverse mkt conditions, then it becomes "do I really need or want to pay another 20bps to my banksters?", but regardless of the official math, there is the all important "what are the foreseeable circumstances under which your hedges will NOT perform as designed?"  

Black Swans, aren't. -unless you are a TBTF banker in need of bailout. 

Of the farmers I know and work with, most of them know finance better than typical front office bankers/brokers.

Fri, 04/24/2015 - 17:53 | 6027929 farmerbraun
farmerbraun's picture

"any prepayment penalties? if so, how many points? "

Yes ; number of points (+ or-) depends on which way rates have moved. (Sometimes [when rates go up] I can break a term loan and get a bonus.)

Loan is in $NZ.

No product price volatility (I don't export), and off-take is consumer-driven and very steady with a slight upward slope.

A rising $NZ lowers my input costs (fuel and plastic packaging) ,but cost of sales is low anyway ; the margin is very large compared to agricultural commodity production. I sell only value-added products. Cash flow is constant year-round , and profitability is at the very top end for agriculture.
With a million in cash reserve , I think I'm covered.

The real black swan would be a biosecurity failure , like foot and mouth disease, against which there is no possible hedge. Floods and droughts are always covered.

Maybe the question that I should be considering is how to increase wealth in this coming situation.

A land -price correction would see that cash reserve utilised to pick up adjoining land without incurring any further debt.

Fri, 04/24/2015 - 18:23 | 6028005 Urban Redneck
Urban Redneck's picture

In that case I'll stand by my uninformed gut instinct of 3yrs.  You don't seem to be paying your banker an arm a leg as a baseline cost of doing business and the 17bps would only cost about 5,000 NZD over the term.  For that cost you would avoid having to deal with your bankers next spring in the event of an October surprise that lasts until May (rinse, repeat of 08-09), unless an attractive opportunity presented itself due to others' misfortune.  In which case a million in cash, an existing relationship with your banker replete with performing loan, and increased equity in the existing property should allow for substantial credit in all but the worst market conditions.  But I am biased- I live in a country where purchasing insurance might as well be a sexual fetish, and my business is both capital extensive and cross border - so paying the banker beast is an accepted way of life, and I'm happy to pay to a nominal amount to avoid potential headaches.  

Fri, 04/24/2015 - 15:35 | 6027456 Dubaibanker
Dubaibanker's picture

Go one year renewal, I say.

Short term fixed rates are always lower than long run. Banks need to cover the long term risks and hence rates are higher.

Even if rates rise, whcih I most certainly believe with a probability of 80% that they will not, you will still save this year and next and will always be better than a 3 year rate or a 5 year rate, however marginally. Keep the cost for yourself low.

Floating rate should have been lower. Why is it so high for you? Where are you based? Looks like a business loan?

My 2 cents...

Fri, 04/24/2015 - 15:51 | 6027495 farmerbraun
farmerbraun's picture

Yep , it's a business loan , to a highly profitable business ($500K profit/annum), secured against prime NZ farm land , and the business entity has 1 million cash deposit with said bank (Rabobank).

The floating rate looks like a disincentive , wouldn't you say?

P.S. it's moving quite quickly ; 5 months ago the 5 year rate was 8%.

Fri, 04/24/2015 - 15:55 | 6027552 I need more asshats
I need more asshats's picture

Wait a minute. Do you work from home?

Fri, 04/24/2015 - 16:31 | 6027712 farmerbraun
farmerbraun's picture

My business is my home.

Fri, 04/24/2015 - 16:13 | 6027635 Dubaibanker
Dubaibanker's picture

The floating rate could be lower or higher than a fixed rate based on 1 year forward rate projections. Currently, everyone and their mother is predicting a higher rate, hence the variable rate is higher.

It is not about disincentive. It is more about risk and forward rate premiums.

The thing is Kiwi dollar has dropped from 88 cents to 76 cents which is over 13% decline in last few months. Due to this movement, interest rates are volatile and trending lower since the NZ economy is barely sputtering at 0.9% growth.

I always favour a fixed rate because we have so many surprises in this world.

1 year seems ideal.

Also, if rates move lower, you will again get lower rates in 1 year and have peace of mind until then and not worry about what's happening in the economy or the rates until a year from now.

Another thought for you.

If you could buy a top rated bond and earn 4% or 4.5% pa in NZD, then you take a loan against it. This will save you money because you will always be earning this return on your own money and even pay lower rate because banks charge less on such investment related loans. You could carry it like an overdraft because such loans can be paid back at any time with very little penalty or no penalty. 

This is usually done by private banks or wealth management arms and you could get back upto 80% of your money, not 100%, as loan.

Since your land is secured here, therefore, this may not work for you but do try this strategy in future, if not now. This way at any time when you business has cash it can be used to pay this loan back and reduce your total costs which cannot be done in a typical business loan.

Fri, 04/24/2015 - 16:40 | 6027714 farmerbraun
farmerbraun's picture

Thanks for taking the time .

At the back of my mind is the risk profile of NZ , and especially NZ agriculture which is almost totally export -oriented.

Yes the $NZ is down in recent months but is regarded as too high for a nation exporting commodities which are taking a big hit , and look to be staying down for several years. The dairy export price has halved.
On top of that lowered return from commodity exporting , if the offshore competitive devaluation war hots up , and /or the US starts more QE, then the floating NZ dollar goes (relatively) sky-high , and the risk premium on lending to NZ goes way up.

Sat, 04/25/2015 - 06:26 | 6028901 Dubaibanker
Dubaibanker's picture

I dont expect NZ to collapse. They have resources, milk food and have greenery. Lot of chinese have lately started moving in as well as lot of retired people.

NZ has also tightened corporate laws and added a requirement to have a NZ based director which wil reduce tax avoiding people and reduce future problems with money laundering etc.

I see rates getting lower in NZ. all countries are getting detached from each other so influence of any one currency except China is declining rapidly.

Devalutaion is very hot already which I had predicted about 3-4 years ago.

South Africa, Brazil, Russia and to some extent Malaysia, India, now AUD and CAD too have declined. This iwll continue. However, this makes USD investors to move in.

So there is a lot of balancing act and hence rates will keep declining because growth has declined and so has debt.

You should not see more devaluations because devaluations are stil not helping because no country wants to import but everyone wishes to export! Devaluations could happen because FDI stops but NZ is doing just fine overall.

The correlations of the past do not exist any more. New correlations are arriving like the debt load, QE, lack of imports but need for higher exports etc which is creating new correlations.

Hope this helps.

Cheers!

Fri, 04/24/2015 - 15:37 | 6027467 I need more asshats
I need more asshats's picture

I'm pretty sure the team is going to advise you to lever up and "go for broke", attempt to rehypothecate by issuing debt upon your debt.

Fri, 04/24/2015 - 15:38 | 6027476 farmerbraun
farmerbraun's picture

Yeah right :-)

Nice work if you can . . . .

Fri, 04/24/2015 - 18:16 | 6027987 Clycntct
Clycntct's picture

Crowd fund at 5% for 5yr.

I'll take 1000.

Fri, 04/24/2015 - 15:25 | 6027414 NoDebt
NoDebt's picture

I'm not going to pay that.  That's my wife's credit card.

Fri, 04/24/2015 - 16:27 | 6027694 Kirk2NCC1701
Kirk2NCC1701's picture

Trump's wife is from there. That you Donald?

Fri, 04/24/2015 - 15:30 | 6027434 riot-police
riot-police's picture

Chump, change. No story here

Fri, 04/24/2015 - 15:33 | 6027442 Miss Expectations
Miss Expectations's picture

Apologies for being off topic...but, it's been a busy earthquake day...

Just had 9 in Hawaii

http://quakes.globalincidentmap.com

Fri, 04/24/2015 - 15:37 | 6027468 farmerbraun
farmerbraun's picture

Sorry , but anything less than 6.5 Richter , at greater than 10km depth does not qualify here in the Shaky Isles :-)

Fri, 04/24/2015 - 15:41 | 6027489 Miss Expectations
Miss Expectations's picture

Let us know when you feel the earth move.  (It was the quantity that stood out.)

Fri, 04/24/2015 - 15:43 | 6027505 farmerbraun
farmerbraun's picture

We have 14,000 quakes per year: do the arithmetic.

Fri, 04/24/2015 - 16:00 | 6027580 AIIB
AIIB's picture

Shut up already, DAMN! ~ Prince (HOUSEQUAKE)

https://www.youtube.com/watch?v=l4KPksKAmDc

Oh wait, that was BANNED!

Fri, 04/24/2015 - 15:58 | 6027567 kaiserhoff
kaiserhoff's picture

Must be fracking.

According to Oilprice that's the only cause of earth quakes.

Fri, 04/24/2015 - 15:35 | 6027453 rlouis
rlouis's picture

I didn't read a word about Goldman Sucks in that, but I'm pretty darn sure they've got something to do with it. 

Fri, 04/24/2015 - 15:35 | 6027457 Atomizer
Atomizer's picture

No bailout for you. Anyone with common sense can see the bank ledger of your arrears. Go fuck yourself. BTW, tell the World Bank NGAS won't work. Considering you cannot pay your outstanding loan, another loan to rebuild a new infrastructure for this nature is laughable. Start putting up property as asset collateral. Get out out debt freeloaders. 

End to Flaring Can Provide Energy to Millions https://m.youtube.com/watch?v=4sNrCmYQ8sg Otter World Bank shit from a video tube. 
Fri, 04/24/2015 - 15:42 | 6027501 kchrisc
kchrisc's picture

Bank ledgers?!

Where real wealth, the wealth of the depositors, are "liabilities," and stolen and printed wealth are "assets."

Liberty is a demand. Tyranny is submission.

 

Guillotines are the only way to repay fiat-loans.

Fri, 04/24/2015 - 15:38 | 6027472 kchrisc
kchrisc's picture

"Help! We stole more than we can steal."

Liberty is a demand. Tyranny is submission.

Fri, 04/24/2015 - 15:39 | 6027477 gdiamond22
gdiamond22's picture

Interesting how history is repeating. The initial spark that  the lit the fuse for the Great Depression was the bankruptcy and failure of the central bank of AUSTRIA. Coincidence? Should be interesting times ahead.

Fri, 04/24/2015 - 15:48 | 6027527 q99x2
q99x2's picture

They better not cut into my FAFSA.

Fri, 04/24/2015 - 15:57 | 6027559 SpanishGoop
SpanishGoop's picture

Carinthia, to be beautiful but broke.

 

Fri, 04/24/2015 - 15:58 | 6027569 ...out of space
...out of space's picture

all this money runs out, liquidity shock... 

it means that international banks are getting ready to pull the plug. 

shrinking the money credit ( gordon t long got article on that )

http://www.gordontlong.com/Articles/art-2015-04-A-Macro_Insights-Shuttin...

and in documentary THE MONEY MASTERS ( its on youtube) are history exemple provide by Still Bill

Fri, 04/24/2015 - 15:59 | 6027573 walküre
walküre's picture

if Carinthia defaults, I'm moving there.. Pristine and safe as Switzerland but a fraction of the cost

a default Carinthia would need to lobotimize its government bureaucracy and services

performers and entrepreneurs would stay

win win

Fri, 04/24/2015 - 16:00 | 6027582 Paracelsus
Paracelsus's picture

They sold a bunch of this toxic Hypo bank stuff to a large Bavarian bank,which will be bailed out by the German taxpayer.The Carinthian state should just default.Future state income will have to come from taxation,as the borrowing door will be slammed shut.

Thanks a bunch,George,ya fascist bastard....

Fri, 04/24/2015 - 16:01 | 6027583 Banker Buster
Banker Buster's picture

Well then, g'day mate.

Sat, 04/25/2015 - 02:18 | 6027588 Sauerkraut-Opinion
Sauerkraut-Opinion's picture

...a lot of work for Austrian milk cows....

Fri, 04/24/2015 - 16:09 | 6027612 Paracelsus
Paracelsus's picture

Tyler,pretty good stuff over at Nachrichten heute on the scummy charachters involved in the birth of this banking crisis.Clear links to all the Iran /Contra,Ollie North junior varsity team players,int'l con men and gun runners under the Reagan Admin. in the White House.

Tyler,why not dig a little deeper? No nail guns or exploding Mercedes coupes? Come on..... 

Fri, 04/24/2015 - 17:07 | 6027818 Felix da Kat
Felix da Kat's picture

I think my wife and I'll move there ASAP. The US has become an intractable zoo of amorality. Greutzi Austria ! 

Fri, 04/24/2015 - 18:27 | 6028013 Prober
Prober's picture

Carinthia is one of my favorite places. I go hiking & biking there every summer. Scenery is captivating, food is ambrosia, beer is nectar. Close to Vienna and Munich for big city stuff.

Fri, 04/24/2015 - 19:40 | 6028177 Pancho de Villa
Pancho de Villa's picture

I thought Austria was a Big Island with Kangaroos?

Sat, 04/25/2015 - 00:27 | 6028711 Joe A
Joe A's picture

Geez, they just don't get it. Go ask for your bailout at the IMF so you will be on the hook for debt repayment for the next 30 years and you'd need to apply Structural Adjustment Programmes stealing the pensions of your elderly and the salaries of your teachers. Duh.

Sat, 04/25/2015 - 03:12 | 6028822 Schmuck Raker
Schmuck Raker's picture

If it was a bit warmer it would be like Greece, but bigger tit&, and smaller tip&.

Sat, 04/25/2015 - 03:17 | 6028828 Schmuck Raker
Schmuck Raker's picture

Will gold go up 20 bucks before oil drops - a bunch?

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