Well, we think “Dutch-bottomed” is probably a better metaphor for what’s happened to SNS Reaal’s subordinated bondholders than Bond Vigilantes’ “Going Dutch”. That just means splitting the bill. Dutch-bottomed is empty, or perhaps fallen through the trap door.
The Netherlands government did an unusual thing when it nationalised SNS, a small and struggling mortgage bank on Friday. It expropriated subordinated bonds of the lender. Here’s the decree. It theoretically suggests the holders still have a claim on the value of the bonds, at some point: Read more
Just a small thing from Spain’s latest banking legislation, but a telling thing…
On this quiet, Olympics Friday — some bank bail-in reading, courtesy of a judgement by the High Court of England and Wales.
It’s come down surprisingly hard on a small, but very important, weapon in the armoury of bailing-in bank bondholders: exit consents. Read more
… we can just not call your bonds like you thought we would.
This is the tactic that Santander and Lloyds have seemingly been taking, as they try to get bondholders to exchange subordinated debt for senior bonds that improve capital. Read more
Moody’s has warned that banks in 15 European countries may have the ratings our their subordinated debt cut. In a statement on Tuesday morning, the agency said that an assumption of government support was built into the ratings of 87 banks and that this would now be reconsidered, with ratings potentially cut by two levels. The agency cited the deterioration of the debt crisis in Europe and the increased pressure on sovereigns that makes it less likely that they’d be in a position to backstop their banks, Bloomberg reports. Read more
After a very vocal campaign highlighting the unfairness of Bank of Ireland’s proposed exchange offer for subordinated debt — which included £75m worth of so-called Pibs that the Irish bank inhereited from Bristol & West held that are mostly held by pensioners– it looks like a victory has been declared. Read more
A swift response from the UK’s Financial Services Authority
Holders of Bristol & West permanent interest-bearing shares (Pibs), a type of subordinated debt, last week asked the FSA to look into Bank of Ireland’s debt restructuring. Read more
More hedge funds than pensioners in the lawsuit filed against Bank of Ireland over the weekend: Read more
Regulatory snafu anyone?
The UK’s Independent Banking Commission (IBC) recommended in April that banks start ‘ring-fencing’ their retail operations so that large banks are able to fail without endangering depositors. That is, so-called ‘universal banks’ that provide both investment banking and retail operations will have to have retail subsidiaries, with separate and sufficient ‘ring-fenced’ capital to cover their own liabilities. Read more
So bad a mess even the hedging looks bust.
Quite apart from threatening to overturn the foundation-stone financial hierarchy of debt over equity… Read more
Fresh on the Isda website, and spotted by a reader:
‘In the interests of providing public information…’ Ireland’s central bank just released details on outstanding senior and subordinated debt issued by Irish banks. You know, the stuff in the bail-in firing line (notably the bonds in the third column of this chart):
We’ve heard of CDOs swashbuckling with risk, but this is just silly…
On Tuesday, Moody’s junked €200m of notes of Corsair Finance (Ireland) No. 2 Limited, a collateralised debt obligation referencing several corporate entities. Read more
Cast your minds back to the (heady) final days of 2008 — when Deutsche Bank rattled the bond market by opting not to call one of its Tier 1 subordinated bonds.
The decision spooked bank debt investors. These kinds of callable bonds had usually always been called at par, at the first available date. Deutsche said it didn’t want to call because it would be more economic not to. Investors accused the German bank of “narrow financial logic” and threatened never to invest in their bonds again. Read more
CoCo *pops.* Curtains for CoCos. And so on.
Late on Thursday the Basel Committee released its final (and curt) rules on loss-absorbing bank capital, including the mandate that all Tier 1 and Tier 2 instruments are able either to be written off or converted into equity at the behest of regulators. Read more
It’s arrived! Straight from the European Commission — the much-anticipated consultation paper on haircuts for (dum dum dum) investors in future bank debt.
The press release, with our highlights: Read more
Here’s the action in European financial CDS as the market waits for the European Commission to release a consultation paper outlining its plans to haircut senior bank (not sovereign) bondholders. According to Ambrose Evans-Pritchard of the Telegraph this will happen today, Thursday, which means we’re seeing this:
Markit iTraxx Senior Financials 186.5bp (+7)
Markit iTraxx Subordinated Financials 350bp (+10) Read more
Or, all CAC-ed up?
In addition to creating a two-tiered sovereign bond market in Europe, those Collective Action Clauses (CACs) beloved by ze Germans — and meant to force debt restructuring losses on private investors — could well end up increasing a country’s chance of defaulting. Read more
So what’s up with Banco Popolare and Monte Dei Paschi Di Siena?
We ask, because credit default swaps on these two Italian banks’ subordinated debt have recently rocketed off from their peers. Read more
Surprise! More burdensharing for Irish bank bondholders is here.
Only, it’s rather softer. The considerate side of burdensharing, if you like. Read more
Fresh from the International Swaps and Derivatives Association:
London, Wednesday, November 24, 2010 – The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its EMEA Credit Derivatives Determinations Committee resolved that a Restructuring Credit Event occurred in respect of Anglo Irish Bank Corporation Limited, a Dublin-based banking service provider. Read more
From sub-debt to equity and on to senior debt, then. We’re seeing some selling of Tier 1 European bank paper on Wednesday. The below from Suki Mann at SocGen: Read more
A datapoint in the burdensharing for (Irish bank) bondholders theme.
On Friday, holders of Anglo Irish subordinated debt due in 2016 voted on an amendment needed for the bailed-out bank’s discounted exchange offer. The change to terms passed, though a group of 2016 holders still say they plan to block the deal next month. Read more
So much for the bondholder resistance.
The results of Anglo Irish Bank’s first sub-debt exchange offer — the one aimed at inflicting ‘burden-sharing’ on bondholders — are out. This particular meeting is the prelude to the main 2016 noteholder meeting, and the 2016 exchange is conditional on it (2016 Notes Purchase Resolution) being passed. However, we think if you were going to move to block the exchange offer — as some bondholders have threatened — you would’ve done so at this meeting too. And that hasn’t happened. Read more
Denial. Anger. Bargaining. Depression. Acceptance:
The intention is and the expectation is, on their [the IMF's] part and personally on my part, that negotiations or discussions will be effective and a loan will be made available and drawn down as necessary… Read more
It’s not just the Irish sovereign that’s experienced a — erm — market deterioration.
From Suki Mann, credit strategist at Société Générale: Read more