Novo Banco: picking losers

Investors should price in the risk that EU authorities may exclude from bail-in bondholders of the same class, the Financial Times’ Lex column argues.

“Banks in urgent need of capital have no easy options. State bailouts sow moral hazard and raising equity or selling assets is hard, particularly at a moment of public weakness such as the aftermath of a failed stress test. The fashion now is for bondholders to step up and absorb losses, almost as if they owned equity. Fairness and prudence require that losses be dispersed evenly across all bondholders — so the hit is painful to all, but lethal to none.”

Read the full story here.

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Investors cry foul over bank bail-ins

New EU bail-in rules spread fear among large depositors and senior bondholders, the FT reports.

40107a74-07b0-4bde-8886-8ed32c4e623c“In both the Greek and Italian cases, banks were rushed into recapitalising before the new EU regime came into force on January 1, which could have meant losses for large depositors. When depositors have been bailed in before — such as in Cyprus three years ago — it has caused public fury and economic instability.

However, it is the Portuguese situation that has most upset investors. The central bank chose five senior bond issues out of a total of 52 to move from Novo Banco to the “bad bank” it set up to hold its toxic assets after a bailout in mid-2014.”

Read the full story here: http://on.ft.com/1O6TFvw

Bank rescues: putting bondholders on the hook

From bail-out to bail-in: Will the Single Resolution Mechanism set a new paradigm? The Financial Times reports.

1f8fc88f-8476-4007-a6ff-ab294868608aEurope’s new system, which puts bank bondholders rather than taxpayers on the hook for losses, has been cemented with the creation of the Single Resolution Board. Within the eurozone, much of the responsibility for preventing any backsliding in the application of the new standards will fall to Elke König, the 61-year-old former head of Germany’s financial regulator BaFin, and the first chief of the SRB.

It is a crucial element in Europe’s three-pillar “banking union” construct, which also spans eurozone regulatory supervision and deposit guarantees. The implications are vast but the big question is: will it work?”

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New EU authority budgets for 10 bank failures in four years

20120925PHT02709_original-612x336“The new EU authority that took over the job of winding up failing banks on January 1 has budgeted enough money to wind up 10 banks over the next four years, a tender sent to financial services firms shows”, the Financial Times reports.

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