Austria nationalized troubled financial institution Hypo Alpe Adria, a unit of German public-sector bank BayernLB, on Monday, bank and government officials said.
The decision was taken to prevent Hypo Alpe Adria from sliding into a bankruptcy fueled in part by bad loans, much of them in Eastern Europe.
BayernLB said that Austria is taking its 67.08 percent stake in Hypo Alpe Adria for the symbolic price of euro1 ($1.46).
Bayern LB added that it was maintaining its existing liquidity lines to the bank and waiving a total of euro825 million in receivables due from Hypo Alpe Adria.
Bavarian Finance Minister Georg Fahrenschoen, who heads BayernLB's administrative board, said the deal was needed to "stabilize a bank of systemic importance to Austria and southeastern Europe." He said the German bank was writing euro2.3 billion off its books as part of the deal.
At a news conference in Vienna, Michael Kemmer, the head of BayernLB, called his bank's decision to give up its interest in Hypo Alpe Adria, "a painful step."
Later in the day, Bavarian governor Horst Seehofer said Kemmer _ who signed off on the aquisition of Hypo Alpe Adria when he was the company's chief finance officer in 2007 _ had resigned as CEO.
Seehofer earlier estimated BayernLB's total losses at euro3.75 billion, taking into account the 2007 sale price, capital increases and the euro825 cash injection.
In addition to the euro825 million coming from the Bavarian bank's decision to give up its claims, Austrian Finance Minister Joseph Proell said Carinthia province, which was also part owner, was providing euro200 million and up to euro450 million would be offered from federal Austrian funds.
Carinthia and the third part-owner, Austrian insurer Grazer Wechselseitige, also gave up their holdings to the Austrian government for a symbolic euro1.
BayernLB bought its Hypo Alpe Adria stake in 2007 for some euro1.6 billion.
Hypo Alpe Adria has some 7,000 employees and is active in central and eastern Europe. It has suffered from hefty writedowns recently.