Bondholders “Bailed In” In Austria – EU Bondholders Today, U.S. Depositors Tomorrow?

Tuesday, March 3, 2015
By Paul Martin

By: GoldCore
GoldSeek.com
Tuesday, 3 March 2015

– Auditors find €7.6 billion hole in Austria’s “bad bank”, Heta Asset Resolution AG

– Austria’s government says it will not give Heta “a single euro”

– Emergency legislation passed last month means bondholders to be bailed in

– Risk of contagion high as other banks may hold Heta bonds

– “Bail-in is now the rule” – EU Finance Minister Noonan

– Austrian bondholders today … international depositors tomorrow …

There are signs that the debt induced banking-crisis which rocked the global economy in 2008 – only to be postponed with vast infusions of new unpayable debt courtesy of the taxpayer – may be set to resume.

Bondholders are feeling the painful impact of the EU’s new bank resolution regime and bank bail-ins for the first time after the Austrian government said it would pour no more money into its ‘bad bank’, triggering a fall of nearly 30 per cent in the value of some bonds.

Austria’s Financial Market Authority (FMA) has discovered a €7.6 billion capital shortfall on the balance sheet of Heta Asset Resolution AG, the “bad bank” that was formed from the remnants of failed lender Hypo Alpe Adria.

The Austrian government – who have heretofore plied Heta with €5.5 billion – held an emergency meeting to discuss the development. They concluded that they would not hand over “a single euro” to the bad bank.

Instead they have opted to use new legislation based on the EU’s Bank Recovery and Resolution Directive (BRRD). The legislation was, coincidentally, enacted in Austria last month despite the fact that other European countries are not due to ratify the directive until early next year.

The BRRD paves the way for bail-ins of bond-holders and bank deposits over a certain amount. Heta does not have depositors and so it is bond-holders who will incur the losses.

Bloomberg reports that among Heta’s bondholders are Deutsche Bank and UBS and Pacific Investment Management Co. (PIMCO). Whether these institutions are strong enough to absorb their losses remains to be seen.

We will begin to get an idea during the course of this month as Bloomberg reports:
“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.”

If Deutsche Bank or UBS were to be significantly affected by the demise of Heta, we may see a renewed banking crisis and contagion concerns would reemerge.

The Rest…HERE

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