Now raising intellectual capital

The European Commission strikes back


Reeling from the humiliation of failing to stop Belgian bank KBC paying interest on some of its subordinated bonds, the European Commission has won a new victory in its bid to see bondholders share the pain of bank bailouts.

Acting as a sort-of policeman for Brussels, the UK’s Financial Services Authority has prevented the Royal Bank of Scotland from repaying four subordinated bonds at their first opportunity, causing prices to plunge by up to 15 percent. The Upper Tier 2 euro-denominated bonds fell to between 70 and 75 cents, depending on who you ask.

Behind all this lies the long arm of the European Commission, which recently launched a crusade to see banks’ subordinated bondholders share the pain of public-sector bailouts.

Brussels is very uncomfortable about the idea that banks that have accepted state funding should then use some of that money to pay discretionary dividends on, or redeem at par, bonds they have issued that are trading at a discount to face.