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Creditor Participation in Eurozone Bank Restructurings A Corner Turned. June 2013 Hans-Joachim Duebel Finpolconsult , Berlin. Discussion Topics. Changing definitions of bank capital Basel III migration and its impact on gone concern banks Creditor participation before restructuring
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Basel III (Dec 2010)
Source: FitchRatings (2010)
Alpha Bank 2012 and 2013 LME(assuming full exercise of 2013 offers)
Alpha Bank Liability Structure
Sources: Alpha Bank, Finpolconsult LME deal analysis.
Expected gross 600 million CT1 effect (disregarding the opportunity cost) from voluntary LME looks ambitious. Piraeus May sub LME had 10% acceptance.
*Nationalized EFT Eurobank is the only core bank that has offered a debt equity swap per May 2013 to sub bond investors, but it was voluntary.
Other banks offered cash LME (Alpha 55c, Piraeus 55c).
Alpha, Piraeus and NBG also offered cash to hybrid capital investors (35-40c).
Compare to Anglo Irish 2010 sub LME : investors demanded 35-40%, government offered 20%, demanding exit consent to punish holdouts.
Comparable legal situation (offshore trust SPV-Issued)
“Liquidity management exercises” (Nov 12 CB report)
Laiki Bank Subordinated Eurobond with 2016 maturity2012 voluntary LME followed by 2013 restructuring (‘mandatory LME’, SLE)
Sources: Laiki Bank, Finpolconsult LME deal analysis.
Source: Laiki Bank Reporting, Finpolconsult.
Laiki Bank ELA Uses
Some 50% of ELA that Laiki received can be estimated to have used to pay out mostly large deposits (IBU), senior and subordinated bond holders.
Letter from Anastasiades to Draghi strongly criticizes ECBs role. Asmussen: ‘did not reach 2/3 majority in board to block.’
The insider run preceeded the bail-in debate (Nov12-Mar13)!
De-facto deposit insurance? (analogy to US 1933 Emergency Banking Act)
Laiki Bank Deposits by Source
Source: http://static.cyprus.com/Laiki-ELA.jpg, Central Bank of Cyprus, Finpolconsult computations.
Bankia Liability Structure
Banco de Valencia Liability Structure
Sources: Banco de Valencia, Bankia reporting, Finpolconsult computations. Note: senior bonds include covered bonds, which however largely disappear from reporting as a technical effect from large scale repo with the ECB.
Bankia SLE, Expected Loss
Laiki – Authors’ SLE Simulation of Feb 13
Bank of Cyprus = extension of Spanish SLE, with more granular ranking
Comparable U.S. case - CIT Group FDIC-supported pre-pack (2009); FSB Recs.
Model applicable to going concerns, rather uncertain moderate-sized loss.
Bank of Cyprus Bail-inable Capital* and Capital Gap
Bank of Cyprus DES Approach
Source: Finpolconsult. *10% standard assumption for European bail-inable deposits, Cyprus ratio ca 50%.
Laiki Bail-inable Capital* and Capital Gap
Laiki Good Bank & P&A
Model applicable to gone concerns, rather certain large loss.
Source: Finpolconsult.*see Bank of Cyprus.
Sareb: A Public or Private Bad Bank?
Standard Bad Bank Model (Germany)
Bad Bank = Asset Swap.
European standard until Cyprus. Spain fiscal accounting:
Beyond fiscal arbitrage, the bad bank model is problematic with regard to bail-inable creditor subsidies, esp in a low asset price inflation environment
Spanish Banking Program, Group 1*
Greek Banking Program**
Cyprus Banking Program***
Source: Central banks, Analistas Financieras Institucionales, Finpolconsult. Gap based on target CT1, ‘internal includes proceeds from sales, accounting issues (DTA)’ *pre-Sareb, **without impact of Good Bank-Bad Bank splits on non-core banks, ***assumes some OSI in debt-equity swaps.
Fiscal Loss Based on 2012 CT1 Book Value
Source: Bank reporting, national central banks, Finpolconsult.
Alpha Bank HFSF Warrant Pricing
Fiscal Loss Based on Target CT1 Book Value
Source: Bank Reporting, national central banks, Finpolconsult.
Spain, Banking Program Accounting under Author’s Subjective Expected Loss Assumptions
Source: FROB, Bank of Spain, Autonomous Research, Finpolconsult assumptions and computations.
Greece, Banking Program Accounting under Author’s Subjective Expected Loss Assumptions
Source: Bank and press reporting, Finpolconsult assumptions and computations. Note: very limited data officially provided by HFSF. Without bond guarantees.
Source: Bank reporting. *7 caja reporting for 2010, Bankia senior bonds minus 50% assumed covered bonds, **assumed to be the average uninsured deposit ratio outside Cyprus. CT 1 needs include early gov recaps. Finpolconsult.
FDIC Least Cost Resolution Game Changer 1991
European regional bank crisis is comparable to U.S. S&L crisis
In the U.S, the 1991 FDIC Improvement Act marked the turning point – a full 9 years after Garn St Germain:
Europe: IKB to Cyprus is 5.5 years.. (but there was a template!)
Definition of bank capital
Banking Union architecture
Crisis management and restructuring/resolution (R&R) policies