Just over a month ago, on March 1, the Austrian financial world was shaken by news that the first bank bail-in following Cyprus would not take place in Greece as many had expected, but in Vienna: judged by the rating agencies to be one of the safest places in the world, where the bad bank that was created to help with the wind-down of the defunct Austrian lender Hypo Alpe Aldria, would itself be unwound, with creditors suffering the bulk of the pain in the form of the first official “core Eurozone” bail in.
Truly a “black swan” event.
This, together with the revelation of the sordid state of Heta’s books which was only revealed after the bail-in fact, was certainly a shock to bondholders, who had been treating Heta bonds as money good as recently as last summer, only to face losses as large as 50%.
Precisely one week ago in “A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe“, when analyzing the consequences of the collapse of Austria’s bad bank, we noted perhaps the biggest paradox of Europe’s emergency preparedness response to the Greek collapse and imminent expulsion from the Eurozone: namely that the biggest threat to German banks was no longer in some Mediterranean nation, but in its very own back yard. To wit:
Irony #2, and the biggest one of all: while German banks had spent the past 3 years preparing for the inevitable Grexit and offloading all their exposure to the now insolvent Greek state, it was a waterfall chain of events which started in Germany’s own “back yard”, courtesy of auditors who decided it was unnecessary to mark losses to market until it was far too late, and the immediate outcome is that one ninth of until recently Aaa/AAA-rated Austria is now also insolvent. And that is just the beginning. Continue reading