Bloomberg News

Austria Faces $1.3 Billion Bank Injection After ISDA Triggers Greek CDS

March 09, 2012

Austria is facing a capital injection of as much as 1 billion euros ($1.3 billion) into KA Finanz AG less than two weeks after bailing out Oesterreichische Volksbanken AG. (VBPS)

The International Swaps & Derivatives Association yesterday ruled that Greece’s use of collective action clauses forcing investors to take losses under the nation’s debt restructuring will trigger default insurance payouts.

In a statement before ISDA’s decision, KA Finanz said it may have risk provisions of about 1 billion euros if credit- default swaps on Greece it has written are activated. That includes charges of 423.6 million euros on an assumed loss quota of 80 percent, it said.

KA Finanz is the so-called bad bank of Kommunalkredit Austria AG, which was nationalized in 2008 when it was owned by Volksbanken and Dexia SA. While Kommunalkredit continues as a municipal lender and has to be sold again by Austria by mid-2013, KA Finanz took on securities, loans and CDS that are not part of that main business and is winding down those assets.

Austria has promised to keep KA Finanz’s capital ratio at 7 percent and Finance Ministry Maria Fekter said on March 3 that the country may have to inject as much as 1 billion euros into KA Finanz to keep that pledge.

The Alpine republic also has nationalized Hypo Alpe-Adria- Bank International AG and on Feb. 27 announced that it would take a stake of as much as 49 percent in Volksbanken after injecting 250 million euros into the lender and writing off 700 million euros of previous sate aid. Austria is boosting its banking tax to finance the Volksbanken bailout. It has yet to say how it may finance KA Finanz.

To contact the reporters on this story: Zoe Schneeweiss in Vienna at zschneeweiss@bloomberg.net; Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editors responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net


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