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The EC bank debt riddle
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 :
Don’t underestimate the European Commission
Will RBS and Lloyds have to follow Northern Rock and defer coupons on their hybrid debt? There’s a nagging fear that any bank that has needed large amounts of state-aid may have to make subordinated bondholders take some of the pain.
Fitch Ratings has just added to the debate with a slew of downgrades of RBS, Lloyds, and six other banks’ subordinated debt, citing an “increased risk of deferral.” The chief threat here is the European Commission, which is getting very keen on the concept of “burden-sharing”, a euphemism for crucifying bondholders.
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The Wall
