The first bank resolution under the new European bank resolution regime is currently taking place in Austria: the Austrian Financial Market Authority (FMA), the official government regulator for banks, funds and financial institutions, is busy with the resolution of HETA Asset Resolution AG (HETA - formerly Hypo Alpe-Adria Bank International AG).
Hypo Alpe-Adria Bank International AG made headlines in 2008 for losing billions of euros; it was nationalized in 2009. The resolution of HETA represents a significant milestone for the European bank resolution regime, given that this is the first application of the regime therefore there is an absence of any practical experience in this area.
Background - resolution of HETA
The new European bank resolution regime is set out in the EU Directive on the Recovery and Resolution of Credit Institutions and Investment Firms (BRRD). The BRRD is transposed into Austrian law by the Federal Act on the Recovery and Resolution of Banks (BaSAG), which entered into force on 1 January 2015. The provisions regarding the preparation and execution of bank resolution measures constitute the centerpiece of the BaSAG which, inter alia, aim to ensure orderly resolution and preserve financial market stability in cases of failure (or threat of failure) of institutions subject to its regime. The FMA, in its role as the national resolution authority under the BaSAG, is responsible for orderly resolution in the public interest. To this end, the BaSAG provides the FMA with the following resolution tools:
- The sale-of-business tool;
- The establishment of a bridge institution tool (bridge bank);
- The separation-of–asset-positions tool (the creation of a bad bank);
- The moratorium tool; and
- The bailing-in-of-creditors tool (bail-in).
Application of resolution tools
The application of the resolution tools in HETA’s case has been one of the most talked about issues of this year in Austria and across the EU. Starting at the beginning of 2015, HETA was subject to an asset quality review by external auditors. Based on this review it became apparent that HETA would require additional funding to avoid insolvency. As a result, HETA and the FMA asked the Republic of Austria (as HETA’s owner) whether it would be willing to inject further capital into HETA. The government declined, and, consequently, the FMA assessed whether the legal requirements for a resolution of HETA were fulfilled and concluded that this was the case.
The FMA, in its role as the national resolution authority, issued an administrative decision on 1 March 2015 initiating the resolution of HETA in accordance with the BaSAG and the BRRD. In a nutshell, this administrative decision postponed the maturity of certain eligible liabilities of HETA towards its creditors pursuant to the BaSAG until 31 May 2016, thus deferring the due date of payments until 31 May 2016. The FMA therefore imposed a temporary moratorium on the debts, which in their view was necessary to prevent HETA’s insolvency.
The application of the BaSAG and BRRD resolution regime to HETA has, however, not been undisputed. The most controversial issues are: (i) the principal applicability of the resolution measures under the BaSAG and the BRRD to HETA; and (ii) the unlimited guarantees for all HETA obligations assumed in the 1990s by the Austrian Province of Carinthia. Regarding these Carinthian unlimited guarantees, the Hypo Reorganization Act (HaaSanG), adopted in 2014, provided for certain categories of the guarantees to expire. However in July 2015, the Austrian Constitutional Court declared the HaaSanG unconstitutional, and it was repealed in its entirety. One of the reasons for this decision was that HaaSanG made a nonjustifiable and non-proportionate distinction between the guarantees of junior creditors and other creditors. Furthermore, the Austrian Constitutional Court found that legal guarantee statements issued by a federal province cannot be rendered completely invalid retroactively through a single measure imposed by law. Earlier this year, Bloomberg News said of this still unresolved situation, "Austria has its own little Greece."