AIG Lite: Margin Call Claimed First Foreign Casualty Of Austrian "Black Swan"

"We’ve written quite a bit lately about Austria’s Heta, the bad bank gone... well, bad, or as we’re fond of calling it, Austria’s Black Swan. Recapping, an outside audit identified a €7.6 billion hole in the vehicle’s balance sheet, prompting the institution of a debt moratorium. Unfortunately, Austria’s Carinthia province had guaranteed more than €10 billion in Heta debt, which is five times the state’s operating revenue meaning it is, for all intents and purposes, insolvent and unless Austria wants to go the unprecedented route of allowing a provincial bankruptcy, the sovereign will need to step in in one way or another. The next shoe to drop was the German lender DuesselHyp which itself faced insolvency thanks to around €350 million of Heta debt it held on its balance sheet. 

While we wait to see which “well capitalized” bank will be the next to crumble under the weight of mountainous writedowns occasioned by the sudden souring of “riskless” assets, we get to read the DuesselHyp post-mortem, which shows that the bank was effectively AIG’d by Eurex. Here’s more via Bloomberg:

Eurex, Europe’s largest derivatives market, asked DuessHyp to post additional collateral as the German bank faced writing down its 348 million euros ($375 million) of bonds issued by Austria’s Heta, said the people.

The hit to the bank’s capital from the Heta losses and the extra posting of margin forced the lender, laden with swaps, to seek a rescue, said the people.The Association of German Banks, or BdB, on March 15 said it would back DuessHyp, a lender to public entities, and a day later agreed to buy the company from U.S. private equity firm Lone Star Funds…

Apparently, DuessHyp had more than $13 billion in interest rate swaps on its book, a holdover from the bank’s “old” business model which, according to Fitch, involved underwriting “all sorts” of things:

“This is mostly a legacy from the past, because before the crisis they underwrote all sorts of assets from different countries and in different currencies and they used swaps to hedge the risks.”

at  http://www.zerohedge.com/news/2015-03-31/aig-lite-margin-call-claimed-first-foreign-casualty-austrian-black-swan