By Neetha Mahadevan
FRANKFURT--European Central Bank Governing Council member Ewald
Nowotny and Austrian Finance Minister Michael Spindelegger have
downplayed the effects of the downgrade of several Austrian Banks
by rating agency Moody's Investors Service Inc.
Mr. Nowotny, who is also Austria's central bank governor, said
in an interview in Austrian magazine Profil, which is due to be
published on Monday, that he doesn't expect the downgrade to have
any major impact on the banks' actual funding costs.
On Friday, Moody's downgraded most Austrian Banks with a
negative outlook on their long-term debt and deposit ratings
following the Austrian government's proposal to enact legislation
to allow it to wind-down the troubled nationalized lender Hypo
Alpe-Adria-Bank International AG. The proposed legislation foresees
some of Hypo Alpe-Adria's subordinate bondholders potentially
taking a complete loss on their investments despite a pre-existing
provincial government guarantee for the bonds.
Mr. Spindelegger said in a statement late Friday that he sees
the downgrade as "incomprehensible."
"In recent years, Austrian banks have minimized their risks and
are in a stable position. Both Erste Group and Raiffeisen have
received support from the Republic during the financial crisis," he
said.
Moody's said the move to place taxpayers' interests above the
rights of creditors who had previously benefited from a public
sector guarantee indicates that Austrian authorities are more
willing to countenance bank resolutions in which losses may also be
imposed on senior creditors.
"[The downgrade] shows that the creditors may have included the
risks which the OeNB [Austrian central bank] has also pointed out
before. The OeNB had also emphasized on the need for comprehensive
information on the special character of the proposed measures," Mr
Nowotny says. The central banker adds that guarantees provided by
the Republic of Austria, as opposed to the provincial guarantees,
were "fully recognized" by the proposed legislation.
Mr. Spindelegger said that bailing in investors will become a
standard feature in European bank restructuring law and that
Austria was bringing the practice forward for the "special case" of
Hypo Alpe-Adria.
"The Austrian government has anticipated a European Union
directive with the special law," Mr Spindelegger said. "From 2016
at the latest, this isn't the exception anymore, but the rule."
Amid criticism over rescuing the bank, Mr. Spindelegger promised
in March to tap other sources for sharing the cost of shutting down
Hypo Alpe-Adria, including junior securities and former owners.
Nicole Lundeen in Vienna contributed to this article.
Write to Neetha Mahadevan at neetha.mahadevan@wsj.com