Austria Just Announced A 54% Haircut Of Senior Creditors In First “Bail In” Under New European Rules

First bank bail-in in action under the new Bank Recovery and Resolution Act took effect in Europe in 2016. Austria just announced its decision to bail-in senior creditors of failed Heta Bank. Highlights:

  • 100% bail-in of all subordinate liabilities,
  • 54% bail-in, resulting in a 46% quota, for all eligible preferential liabilities,
  • Cancellation of all interest payments from 01.03.2015,
  • Extension of maturities of all eligible debt to 31.12.2023.

The measure was designed to cover an $8 billion-euro hole in Heta’s balance sheet. Interestingly, $11 billion of Heta’s debt is guaranteed by the province of Carinthia. The haircut means the province will face claims of about $6.4 billion which it says it can’t pay. At this point, what’s guaranteed is years of litigation.

Should bailing in the debt creditors prove insufficient in satisfying claims, bailing in depositors is a natural logical next step, a step which has now been firmly laid.

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Bank bail-in

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