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Document Type

Case Study

Case Series

Resolution and Restructuring

JEL Codes

G01, G29

Abstract

Hypo Alpe Adria (HAA) was Austria’s sixth-largest bank by assets at the time of the Global Financial Crisis (GFC) of 2007–2009. HAA pursued a growth strategy in southeastern Europe in the years preceding the GFC—emboldened liability guarantee from the Austrian state of Carinthia—which proved troublesome for HAA’s loan portfolio and led to large write-downs in autumn 2008. From December 2008 to April 2014, Austria provided EUR 5.8 billion in total capital injections—during which time the government nationalized HAA. Per European Commission (EC) authorization of State Aid, Austria had to submit a restructuring plan, which the EC approved in September 2013. The restructuring plan called for three parts: (1) the sale of HAA’s Austrian subsidiary, (2) the sale of HAA’s southeastern European network, and (3) the creation of an asset management vehicle, Heta Asset Resolution AG (Heta), to liquidate what remained. Heta faced ongoing challenges. In March 2015, the Financial Market Authority (FMA) issued a resolution decree for Heta after an asset quality review revealed a capital shortfall. The FMA imposed a temporary moratorium on Heta’s liabilities until May 2016 to provide an opportunity to value assets and deploy the bail-in tool under the Bank Recovery and Resolution Directive. Heta’s creditors challenged the use of bail-in, given Carinthia’s guarantee. In September 2016, Carinthia offered creditors zero-coupon bonds, resulting in a 10% haircut for senior creditors and a 55% haircut for junior creditors in 2016; however, over the following year, most creditors accepted a government offer to buy back their zero-coupon bonds with an additional 5% haircut. Because asset sales went better than expected, the FMA declared that the resolution of Heta was complete on December 21, 2021, two years ahead of schedule. Legacy senior creditors received additional compensation. The Austrian federal government had EUR 6.5 billion in net losses with regard to the recapitalization of HAA and later resolution of Heta; the Carinthian state also lost EUR 1.2 billion from its guarantee. The bail-in cost legacy creditors about EUR 2.1 billion.

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