•  
  •  
 

Document Type

Case Study

Case Series

Ad hoc Capital Injection

Abstract

Hypo Alpe Adria (HAA) was Austria’s sixth-largest bank at the time of the Global Financial Crisis of 2007–2009 (GFC), with EUR 41.2 billion (USD 29.2 billion) in total assets as of June 30, 2008. HAA pursued a growth strategy in Southeastern Europe in the years preceding the GFC, which proved troublesome for HAA’s loan portfolio and led to large write-downs in autumn 2008. HAA’s majority shareholder was a German landesbank, Bayerische Landesbank (BayernLB). On October 26, 2008, the Austrian Parliament passed a EUR 100 billion support scheme in response to the GFC, with EUR 15 billion allocated for troubled banks. HAA was the first bank to request State Aid per this scheme. HAA’s shareholders and the Republic of Austria recapitalized the bank in December 2008 for a total of EUR 1.6 billion. In the second half of 2009, BayernLB concluded that there was no economic justification for maintaining an equity stake in HAA and continuing to provide capital injections, thus shareholders negotiated with Austria to nationalize HAA in December 2009, wiping out BayernLB’s equity. As HAA’s losses continued, Austria’s Financial Market Holding Company performed subsequent capital injections and conversions in HAA to meet the regulatory minimum capital ratio through April 2014. The European Commission ultimately approved a resolution plan in September 2013, which contained three parts: (1) the sale of HAA’s Austrian subsidiary, (2) the sale of HAA’s Southeastern European network, and (3) the transformation into an asset management vehicle, Heta Asset Resolution, to liquidate what remained. In March 2015, the Financial Market Authority issued a resolution decree and temporary moratorium on Heta’s liabilities to provide an opportunity to valuate assets and deploy the bail–in tool under the Bank Recovery and Resolution Directive. Heta’s creditors challenged the use of bail-in, because Carinthia had guaranteed EUR 19 billion of the bank’s liabilities, and Carinthia ultimately offered creditors zero-coupon bonds. Austria had EUR 6.5 billion in losses with regard to the recapitalization of HAA and later resolution of Heta; Carinthia lost EUR 1.2 billion plus operating expenses of the Carinthian Compensation Payment Fund.

Download

Share

COinS