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World Bank hit by Hypo bank 'bail in'

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World Bank hit by Hypo bank 'bail in'
Hypo Alpe Adria Bank. File photo: APA/BARBARA GINDL
16:06 CEST+02:00
Austria’s plan to impose losses on junior creditors of Hypo Alpe-Adria-Bank International AG will cost the World Bank €150 million ($203 million), Bloomberg Businessweek reports.

The lender is in talks with the Austrian authorities about its Hypo Alpe junior bonds, a World Bank spokesman told Bloomberg.

The bonds are part of €890 million in subordinated debt that will be wiped out once a law on Hypo Alpe’s wind-down, passed by the first chamber of parliament in Vienna last week, gets final approval.

The move minimises the bill to taxpayers, but at the expense of mostly foreign investors, who are sure to sue.

The Austrian Finance Ministry has been in touch with the Washington-based World Bank, which inquired about the Hypo Alpe law and asked whether its holding could be exempted, Paul Trummer, a ministry spokesman told Bloomberg. 

It doesn’t see a legal option to do that, Trummer said.

While about 70 percent of Austrians say they’d prefer to let Hypo Alpe go insolvent, the move to void state-guaranteed debt has drawn criticism from rating companies and the International Monetary Fund.

Hypo Alpe Adria has received €5.5 billion in state aid since 2008. Hypo's costs will push state debt to 80 percent of gross domestic product this year.

Opposition parties are demanding a parliamentary investigation into how Austria got into this mess and whether it really had to take over the bank, which nearly collapsed after breakneck expansion fuelled by debt guarantees from its home province of Carinthia.

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