Austria will inject an additional 500 million euros into the nationalized bank Hypo Alpe Adria to help it improve its balance sheet, the troubled lender announced on Wednesday.
The bank was nationalized in 2009 to prevent its collapse, which would have shaken the entire region. At the same time, Hypo is trying to meet regulatory requirements and strengthen its capital by 1.5 billion euros by the end of the year.
The bank stated that it will issue 204 million new shares, with the Austrian government as the sole shareholder having the option to purchase them.
The cash injection of 500 million euros exceeds the announced 300 million euros that, according to a previous statement by Finance Minister Maria Fekter, was reserved for assistance to Hypo. The increased expenditure will further complicate efforts to reduce the budget deficit below the targeted level of three percent of GDP.
The bank’s plans to improve its balance sheet by selling off certain branches have meanwhile run aground due to difficult market conditions. Hypo is preparing to sell its network in Southeast Europe, including its Croatian branch, to raise around 1.5 billion euros. Recently, it set December 7 as the first deadline for collecting bids from interested buyers.
The bank must also secure an additional 700 million euros in capital by the end of March next year to protect it from potential recession and market shocks.
Informed sources told Reuters that Hypo is also preparing to issue a hybrid bond backed by a state guarantee amounting to approximately one billion euros.
