Relief for Austria as S&P rules out downgrade on banking woes

Tim Wallace
Follow Tim
AUSTRIA’S government will not face a downgrade if it takes over bad assets at broken bank Hypo Alpe Adria, credit ratings agency Standard and Poor’s said today.

The government had hoped other banks would back a so-called bad bank solution for the nationalised lender’s loans. But after the rest of the industry refused to join in, the government is left considering running down the loan books itself.

Central banker Ewald Nowotny favours the plan, but finance minister Michael Spindelegger wants Hypo to enter insolvency.

Running down the assets would take more risk and costs onto the state’s finances. But S&P said the move will clear up some uncertainty.

“Although the establishment of the wind-down unit will increase Austria’s ratio of debt to GDP, expected contingent liabilities will decrease by a comparable amount,” said Standard and Poor’s.