The EC bank debt riddle

October 6, 2009

The European Commission seems to enjoy messing with bankers’ and investors’ heads in its crusade against subordinated bank debt.

Earlier this year the EC roiled markets by insisting holders of bank subordinated debt securities should suffer along with the taxpayer for bailouts. It stopped RBS from calling some tier 2 bonds, and also cracked down on KBC.

But now, the sphinxlike Commission has allowed both Dexia and ING – both recipients of state-aid – to call some tier 2 bonds at the first opportunity, giving bopndholders a nice payday.

Is the EC mellowing? Perhaps. Here is the somewhat exasperated comment from analysts at BNP Paribas :

Our job is already hard enough trying to second guess governments and the EC, without having to deal on top of it with actions that do not seem comprehensible. We think that the picture on EC intervention in call approvals is blurry, but that the recent call approvals by Dexia and ING are encouraging for other banks, even for RBS.

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