It was only a matter of time before a banking crisis in tiny Austria would force bailouts in its larger neighbor, Germany.
Hypo Alpe Adria, a long-troubled bank that was bailed out by the Austrian government in 2009, is now officially being liquidated. Its German creditors are unlikely to be re-payed, while the Austrian state of Carinthia that offered the bank guarantees could face bankruptcy too.
The domino-effect from that decision has now begun in earnest in Germany.
German mortgage bank Düsselhyp, based in the far-away western German city of Düsseldorf, was expecting several hundred million euro in bond re-payments from Hypo Alpe Adria. As a result of the crisis in Austria, Düsselhyp is facing insolvency. The mortgage bank will now be bailed out and eventually taken over by a private banking fund run by the German Private Banking Association.
“The deposit protection fund of the Private Banking Association is shielding Düsselhyp from Heta bonds to eliminate immediate risks. The goal is to absorb Düsselhyp fully,” said a spokesperson for the banking association, known here as the Bankenverband.