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Sunday, March 01, 2015 7:09 PM

Austria "Bad Bank" Goes Bad, $8.5 Billion "Bail-In" Underway

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This entire notion that you can take bad assets from a bank and put them in a "bad bank" to make everything well, is ridiculous. Today we see yet another failure of the construct.

Reuters reports Austria Imposes Debt Moratorium on Heta "Bad Bank"

Austria's Financial Market Authority stepped in on Sunday to wind down "bad bank" Heta Asset Resolution and imposed a moratorium on debt repayments by the vehicle set up last year from the remnants of defunct lender Hypo Alpe Adria.

The step, allowed by new legislation that gives banking supervisors more power to intervene, followed an outside audit of Heta's balance sheet that exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill, the FMA said.

The moratorium on repayment of principal and capital lasts until May 31, 2016, giving the FMA time to work out a detailed plan to ensure equal treatment of all creditors, the FMA said in a decree published on its website.

More than 9.8 billion euros worth of debt is affected, including senior notes worth 450 million due on March 6 and 500 million on March 20.

The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta - or "bailed in" - under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden.
Not Insolvent?!

In an absurd statement, the finance ministry added "Heta was not insolvent".

In summary: Repayments on Heta's bonds have been suspended, there is a capital shortfall of $8.5 billion, a bail-in is needed, and taxpayers do not have to share the "entire burden", but the bank is not insolvent.

And by the way,  isn't separating out the "bad bank"  supposed to make what's left of the "good bank",  good? I ask because Heta is what's left of the "defunct" lender Hypo Alpe Adria.

It seems the good bank and the bad bank are now effectively defunct.

Mike "Mish" Shedlock

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