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UPDATE 1-S&P downgrades three Austrian banks on bail-in uncertainty
August 13, 2014 / 6:14 PM / 3 years ago

UPDATE 1-S&P downgrades three Austrian banks on bail-in uncertainty

* Downgrades Erste, RZB and Bank Austria

* Applied one-notch negative adjustment for the banks

* New law causes uncertainty over state support, S&P says (Adds background, detail)

FRANKFURT, Aug 13 (Reuters) - Ratings agency Standard & Poor’s has downgraded three systemically important Austrian banks - Raiffeisen Zentralbank Oesterreich, Erste Group and Unicredit Bank Austria - in response to new bail-in legislation.

In a statement on Wednesday S&P said its move follows the July 31 imposition of a law that will wipe out the claims of subordinated debt holders in nationalised bank Hypo Alpe Adria despite a debt guarantee from the State of Carinthia.

The Austrian government’s decision to impose losses on Hypo’s subordinated debtholders indicates that the authorities’ stance towards supporting systemically important banks is wavering, S&P said.

“In our view, the new law indicates reduced predictability of extraordinary government support for systemically important banks, and for banks’ hybrid capital instruments and grandfathered debt, than we previously envisaged,” S&P said in a statement on Wednesday.

“The negative outlooks on three banks reflect our view that the likelihood of state support could diminish further, as well as bank and industry-specific factors,” S&P added.

S&P applied a one-notch negative adjustment to its ratings on the three banks.

It lowered the long and short-term counterparty credit ratings of Erste Group Bank to A-/A-2, from A/A-1, and of Raiffeisen Zentralbank Oesterreich to A-/A-2 from A/A-1.

S&P also lowered the long-term counterparty credit rating on UniCredit Bank Austria to BBB+ from A-, while affirming the A-2 short-term rating.

The outlook on all three banks is negative, S&P said.

Reporting by Edward Taylor; Editing by David Goodman

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