Remember when we guaranteed our banks? And we were told we had to honour that? The Promissory Note? remember?…. you had your blue jumper on ? Good. Keep reading….
Hypo Alpe Adria, a regional lender rescued by the Austrian government in 2009, and which has now sprung another, €800m black hole… and it is just possible that the name is going to be as memorable as Amagerbanken or SNS Reaal for European banks’ bondholders. Potentially it may be a less than bucolic precedent for sovereign debt, too.
That’s because of another thing about Hypo Alpe Adria (or HGAA) — it has about €15bn of outstanding debt guaranteed by Carinthia’s state government. Carinthia had, at the end of 2012, total debt of €2.6bn with expected receipts of €2.15bn versus expenditure of €2.28bn. Quite a contingent liability. It perhaps explains why there’s now talk of writing down the debt. Bank bail-ins are increasingly the norm of course, but the state guarantee would be a different proposition to Amagerbanken (which affected senior debt) or SNS (which wiped out subordinated debt).
This is only one possible scenario for HGAA (the more mainstream path being discussed by a task-force is a bad bank of some sort) and it appears to have been introduced in a report by Oliver Wyman. It would apparently involve a “voluntary” exchange of the bonds guaranteed by Carinthia into debt guaranteed by the Austrian sovereign itself — but in a ratio of 3 into 2, wiping off €5bn. Oliver Wyman declined to comment to us.
via Bondholder Hypo-thermia, in Austria | FT Alphaville.
There is an interesting op-ed in the Irish Times today, from Stephen Flood of Goldcore. This is on foot of a research note which they have produced (introduced by yrs trly) on the state of play on Bail Ins (where depositors become part of the solution to bank recapitalization, a la Cyprus) across europe.
The risk of such bail-in in Ireland is low. But then so too are interest rates. It might be useful for people, in saving, to consider not just yield but also liquidity risk. Irish banks are well capitalised – but then we have heard that before.
Some thoughts on Europe, Banking and European Banking
So I spent the last few days in Portoroz, on the Slovenian coast, at the 15th Portoroz Business Conference. My talk was on the future of banking post crisis. The slides are attached.
Slovenia is facing a banking crisis, mostly down to crony capitalist lending to politically connected firms. Sound familiar? They had the Governor of the Central Bank and the Finance Minister there to grill over that, along with at least two other ex FinMins in the audience. They are setting a NAMA up also. Slovenia has a banking system fairly much deposit based with Euro area deposits and loans almost matched. It doesnt have much in the way of bonds. Its a clean system in that sense. But the great fear there is that the hole in the bank lending might be as much as 4-6b, which in a country with a GDP of 35b or so is a fair whack. Slovenia has public debt levels of 54% GDP so they should be able to raise this if needed. The alternative is a fullscale bailout. Right now their 10y bond is hovering at 6%.
The spectre haunting the CEOs and CFOs at the conference is that of another peripheral country recently involved in bailout negotiations, where deposit bailins became real. Such was admitted as being unlikely but the genie is out of the box. Slovenia is a beautiful country, with spectacular scenery, lovely people, great food and enjoyable in every way. It has a trade surplus, and is undergoing reforms at a steady pace. The absence, now or prospectivly, of a proper banking union is a major problem for them. The irish experience, of a sovereign state beggared for the banks, is not one that cheers them.