Standard & Poor’s downgrades Austrian provinces

The US rating agency Standard & Poor's, in a new move causing consternation, said on Tuesday it has downgraded the creditworthiness of the Austrian provinces of Vienna, Lower Austria, Styria and Burgenland.

Standard & Poor's downgrades Austrian provinces
Offices of Standard & Poor's in New York, USA. Photo: APA/JUSTIN LANE

The four provinces lost their previous "AA+" rating and have been downgraded to "AA" with a negative outlook. The provinces of Tyrol and Upper Austria kept their "AA+" rating with a stable outlook. The provinces of Carinthia, Salzburg and Vorarlberg had not been rated by S&P.

The rating agency said the downgrade was due to the fact that it was still uncertain whether the federal government would pass a law that included modifications of the fiscal equalisation scheme between the federal state and the provinces.

In July S&P had complained that the government's support of banks was not good enough. This was when the government announced that it wanted to wipe out Hypo Alpe Adria creditors.

S&P warned already in June that Austrian government plans, which would cause major international investors in the ailing nationalised Hypo Alpe Austria bank substantial losses, would harm the country's "good reputation."

S&P said this special law was unique and never before seen in Europe. Thomas Fischinger of S&P Frankfurt complained on Austrian national radio Ö1 that the cabinet regulation was a sign that there was too little support for the banks from the Austrian government.

S&P raised the possibility of lowering its credit-worthiness ratings of several Austrian institutions. Fischinger had said a decision would be taken in July, after the parliament decided on the Hypo regulation. 

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Agreement reached on failed bank bailout

Austrian Finance Minister Hans Joerg Schelling said Wednesday an agreement in principle had been reached with the stricken Hypo bank's creditors that had threatened to bankrupt the state of Carinthia.

Agreement reached on failed bank bailout
Hypo Group Alpe Adria headquarters. Photo: HGAA Website

“We're drawing a definitive line under the Hypo affair” the minister told journalists, referring to state bank Hypo Group Alpe Adria (HGAA), which has saddled Carinthia with 11 billion euros in debt.

The deal will see creditors receive 75 percent of the face value of the HGAA bonds they own. They will be offered to buy that value of Austrian government bonds at 75 percent face value.

The proposal is better than the one creditors rejected in March as the Austrian government bonds mature in 13 instead of 18 years.

Schelling said an agreement in principle has been signed with a portion of creditors and compensation could be launched in September.

The creditors include Germany's Commerzbank and a Dexia unit, according to Bloomberg.

The saga is a legacy of late Austrian far-right political Joerg Haider, formerly premier of Carinthia, who died in 2008.

Under Haider, HGAA expanded into the Balkans as well as Italy and Germany via acquisitions and risky investments, expanding its balance sheet fourfold to some 40 billion euros.

Bavaria's state lender BayernLB bought a majority stake in 2007 in HGAA but two years later, as the global financial crisis raged, the bank came close to collapse and Austria nationalised it.

After a long and bitter dispute, Austria finally agreed last November to pay Bavaria 1.23 billion euros to put an end to the feud.