The Bail-Ins Are Back! Portugal Slaps Senior Bank Bondholders With €2 Billion Loss
by Tyler Durden
ZeroHedge.com
12/30/2015
A little over a week ago, Portugal announced that for the second time in less than two years, Lisbon would be forced to bailout a large lender.
This time around it was Banif, the country’s seventh-largest banking group which ran into trouble when it couldn’t repay a previous government cash injection (so really, this was a bailout of a bailout).
Ultimately, the issue had to be resolved ahead of the new year, when new rules on bank resolutions that would have imperiled uninsured depositors go into effect across Europe. The €2.2 billion cash injection for Banif is set to add at least one percentage point to the country’s budget deficit which is already well wider than Brussels’ target thanks in part to the fact that the cost of last year’s Banco Espirito Santo (BES) capital injection had to be placed on the government’s books after Portugal failed to sell Novo Banco (the “good” part of BES) in order to pay back the taxpayer money spent on the bailout.
The auction process for Novo Banco – which at one point drew the interest of “China’s Warren Buffett” – fell apart late in the summer after Chinese bidders became cautious in the wake of the country’s market meltdown and US private equity was reluctant to bid for an entity with a mountain of NPLs and an uncertain future. In short, it wasn’t clear if Novo Banco would need more capital. Well, it turns out that under the ECB’s “adverse scenario”, the bank would need to plug a €1.4 billion hole and so, out of options, Lisbon has decided to effectively bail-in senior bondholders.
Some €2 billion in bonds will be transferred to BES (which will be liquidated) from Novo’s books. The move immediately raises the bank’s Tier 1 ratio to 13.4% from 9.4% previously. If you own anything on this list, you just had a bad morning:
The Rest…HERE
