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Wind down vehicle for Hypo confirmed

Austria has come to a decision over how to deal with ailing bank Hypo Alpe Adria, with Finance Minister Michael Spindelegger choosing the option of creating a wind down vehicle for the lender.

This comes following recommendations made by Austria's central bank governor Ewald Nowotny last week that this would be the best course of action to take. Nowotny had headed up a task force that had been assigned by the government to recommend the best solution for dealing with Hypo, including the 17.8 billion Euros it holds in toxic assets.

The announcement from the government today puts an end to speculations that the state will allow Hypo to go insolvent, an approach that had not been taken completely off the table but had been criticised by Nowotny and others for being too risky.

Adopting a wind down vehicle means the state will not need to find fresh capital to inject into Hypo but it is expected that absorbing the toxic assets will put Austrian debt to 80% of economic output, higher than Spindelegger had wanted.

The government are also demanding that guarantees to the tune of 900 million Euros held by the state of Carinthia, where Hypo is based, will be bailed in although how this will be done is to be discussed in future negotiations.

Settlement talks with former Hypo owner BayernLB, who many have called upon to shoulder some of the financial burden, would also start soon according to Spindelegger.

Dealing with the Hypo bank has been a worry for the Austrian government since it was nationalised in 2009 to prevent it from going under after it lost money in eastern European markets.

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