Wake up Call from the Alps

Pfäffikon SZ, Switzerland – It probably escaped your attention, but in the Austrian Alps there is taking place a true Lehman debacle for some time now. In the nineties of the last century, Hypo Alpe Adria Bank had an aggressive form of credit lending, particularly focused on the Balkans. Eventually, this business ended ingloriously. As first country within the EU, Austria is now applying the new banking rules in connection with a reorganization where no use can be made of more European taxpayers’ money.

Thriller
The history of the Hypo Alpe Adria reads like a true financial thriller where this small Austrian bank is not playing second fiddle to Lehman. From alleged money laundering, boiler rooms, to the financing of the Freiheitliche Partei Österreichs of the late Jörg Haider; nothing was too crazy for Hypo Alpe Adria. And for the grand finale, mid-2004 the bank lost more than 300 million within 14 days by trading swaps under the leadership by the then-CEO Wolfgang Kulterer.

Skeletons in the Cupboard
Oddly enough, the Bayerische Landesbank showed interest in the scandalous Austrian bank. As the bank’s major shareholder, the Bayerische Landesbank decided to invest billions in Hypo Alpe Adria, but without success. Mid-2009, Hypo Alpe Adria was sold for one euro to the Austrian State and subsequently the bank was nationalized. The Public Prosecution in Germany and Austria successfully executed an extensive research to the role of directors and investors involved in the remarkable loss of approximately EUR 3.7 billion for the Bayerische Landesbank. Eventually, there were many more skeletons in the cupboard and the gap in the balance sheet amounted to EUR 8 billion.

Wake up Call
Unique in the settlement of the Hypo Alpe Adria Bank’s drama is that creditors are suffering for the first time. The Austrian province of Carinthia initially stands surety up to 25 billion euros for Hypo Alpe Adria, which is an insane amount for a relatively modest province. Due to the new European regulations –which became effective January 1, 2016– the guarantee of Carinthia, however, lapses. Creditors will, therefore, get a rude awakening.

It is striking that in the Western press, relatively little attention has been paid to the remarkable collapse of this bank. Additionally, the new European banking regulations are whether or not consciously underexposed. The final settlement of the bankruptcy of Hypo Alpe Adria should be a “wake-up call” for each deposit holder and investor in European financial values.

It remains for me to wish you a good weekend.


Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.