Austria sued Bayerische Landesbank for 3.5
billion euros ($4.3 billion) in the latest twist in a legal
struggle with the state of Bavaria that’s escalating five years
after a bank rescue that cost Austria dear.

Finance Minister Hans Joerg Schelling filed a lawsuit with
the Vienna commercial court against BayernLB today, he told
journalists in the Austrian capital. He said Austria claims
BayernLB didn’t disclose what it knew about probable future
capital needs when it sold Hypo Alpe-Adria-Bank International AG
to the Alpine nation for a token amount.

“The catastrophic economic situation of the bank wasn’t
disclosed by BayernLB when the emergency nationalization was
done,” Schelling said. “The amount of the claim reflects the
real price BayernLB would have had to pay at the time.”

The failure of Hypo Alpe has so far cost BayernLB 3.8
billion euros and Austrian taxpayers 5.5 billion euros. The
fight has marred relations between Germany’s biggest state
Bavaria, BayernLB’s owner, and its southern neighbor Austria.
The dispute — which has led to numerous court cases in Vienna,
Munich and southern Austria’s Klagenfurt — has been mired in
political controversy, rendering settlement talks difficult.

Austria’s lawsuit also points to BayernLB’s cancellation of
loans to its then-subsidiary shortly before nationalization.
That worsened the bank’s plight, Schelling said. BayernLB also
exploited the fact that Austria couldn’t let Hypo Alpe go bust
because of its systemic importance in the Balkan, he said.

While BayernLB expected the case to be filed, it hasn’t yet
received the lawsuit, a spokesman said.

Settlement Failed

Schelling said today he met with Bavaria’s Finance Minister
Markus Soeder about eight weeks ago to discuss an out-of-court
settlement of all pending lawsuits over BayernLB and Hypo Alpe.
Austria is still open to new talks, even though BayernLB hasn’t
responded to a proposal for a deal, he said.

Schelling and Soeder have dug in their heels over the case.
Referring to a separate lawsuit pending in Munich, in which
BayernLB demands repayment of 2.4 billion euros in loans from
Hypo Alpe, Soeder told reporters: “I want my money back.”
Schelling, for his part, said in an interview last month that
“not a single euro will go over the border.”

A spokeswoman for Bavaria’s finance ministry said that if
any mistakes were made in Hypo Alpe’s rescue, they were made by
Austria. She declined to elaborate.

‘Ill Informed’

BayernLB has sued former Hypo Alpe shareholders saying it,
too, was duped into buying the bank in 2007. The case was
dismissed by the Vienna commercial court this week. BayernLB
sued the Austrian government this week, demanding it pays the
debt Hypo Alpe is refusing to redeem. The bank’s lawsuit against
an Austrian law that voids 800 million euros of its Hypo Alpe
claims is pending.

A report by an Austrian government commission chided the
administration for the botched handling of Hypo Alpe earlier
this month. Austrian decision-makers acted like badly prepared
and ill-informed amateurs during the nationalization and
afterward, a commission member said when the report was
presented Dec. 2.

Former Bavarian Finance Minister Georg Fahrenschon, who led
the nationalization talks with his Austrian counterpart Josef Proell in 2009, said Austrian top officials took part in the
talks and they should have known what they were buying.

“I can’t see that the regulator didn’t know which state
Hypo Alpe was in, that the central bank didn’t know what was
Hypo Alpe’s role,” Fahrenschon said in an interview. “In that
respect, I’m a bit surprised by many remarks in recent days.”

To contact the reporter on this story:
Boris Groendahl in Vienna at
bgroendahl@bloomberg.net

To contact the editors responsible for this story:
Patrick Henry at
phenry8@bloomberg.net
Peter Chapman, Zoe Schneeweiss