The Wall Street Journal Europe Monday, July 16, 2012 As of 2:49 AM|
EUROPE NEWS Updated July 15, 2012, 8:49 p.m. ET
Europe's Bank Shifts View on Bond Losses
ECB Chief Draghi Pushed for Senior Creditors of Spain's Weakest Banks to Share Burden; Euro-Zone Ministers Resisted
By GABRIELE STEINHAUSER in Brussels and BRIAN BLACKSTONE in Frankfurt
The European Central Bank, in a sharp turnaround, advocated imposing losses on holders of senior bonds issued by the most severely damaged Spanish savings banks—though finance ministers have for now rejected the approach, according to people familiar with discussions.
The ECB's new position was made clear by its president, Mario Draghi, at a meeting of euro-zone finance ministers discussing a rescue for Spain's struggling local lenders in Brussels the evening of July 9.
It marks a contrast from the position the central bank adopted during the 2010 bailout of Irish banks—which, like Spain's, were victims of a property meltdown—when it prevailed in its insistence that senior bondholders in bailed-out banks shouldn't suffer losses.
The ministers rejected the advice from the July 9 meeting out of concern financial markets would react badly. A draft of the rescue agreement, which will provide as much as €100 billion ($122.5 billion) for the Spanish banking system, requires Madrid to force losses only on shareholders and junior bondholders in banks receiving bailout money, and doesn't mention creditors higher up in the pecking order. A spokesman for the European Commission, the European Union's executive arm, said: "It is clear that senior bondholders won't be involved in burden sharing."
The ministers' decision confirmed a pattern in the euro zone for dealing with bank troubles in which senior bondholders have been spared even in the most brutal failures. But the ECB's shift may be a sign that the tides are turning on the issue, as the euro zone embarks on a fundamental overhaul of the way bank failures are dealt with within the currency union.
In the July 9 meeting, Mr. Draghi argued in favor of including senior bank creditors in burden-sharing between taxpayers and investors in the case of Spain, three people familiar with the discussions said. Two said Mr. Draghi favored forcing losses on senior bondholders only when a bank was pushed into liquidation.
This would mean senior creditors would be safe in cases where a bank was merely being downsized—so far the most common way national authorities dealt with struggling banks. In Spain, in any case, larger banks are expected to continue operations after restructuring and wouldn't have been affected.
A spokeswoman for the Frankfurt-based ECB declined to comment on the July 9 discussions with finance ministers. She stressed that the ECB wasn't a signatory to the bailout deal between the euro zone and Madrid, which was a matter for the governments involved. "National authorities regulate bank-resolution processes," the spokeswoman said, adding that the ECB only provided advice, which "aims to ensure that the treatment of senior bondholders is in line with EU rules."
Imposing losses on bondholders reduces the amount of money taxpayers need to inject into struggling banks. One euro-zone official said the desire to avoid putting more public money at risk than necessary was one reason behind the ECB's change of heart since 2010. The ECB's new stance can also be explained by the different scenarios—including the existence of a bank-restructuring framework for Spain that didn't exist for Ireland, and that the Irish government, unlike Spain's, guaranteed much of its banks' debts.
But a chief reason ministers decided not to make more privileged bondholders take losses was the Irish precedent, two people said. Dublin has had to pump more than €60 billion, equivalent to around 40% of its annual gross domestic product, into several struggling lenders, forcing it to request a €67.5 billion bailout from other European countries and the International Monetary Fund in 2010.
Forcing senior creditors to take losses in Spain would have raised more questions in Ireland about why taxpayers were forced by the EU to take on the huge burden of repaying high-ranked bondholders.
One element likely to increase pressure to force losses on senior creditors is a plan, agreed by euro-zone leaders at a summit last month, to soon allow the euro zone's bailout fund to directly recapitalize failing banks—instead of lending the funds, as at present, to the banks' host governments. That would put European taxpayer money directly on the line for saving banks in other countries. Officials from rich northern countries, led by Germany, have said that taking joint responsibility for bank rescues is possible only if recapitalizations don't create major losses—a strong case for putting a heavier burden on private investors.
In fact, EU rules on how to deal with bank failures are murky. There is no harmonized legal framework for closing or restructuring banks that run into trouble. Rules on state support for banks seek to limit the amount of taxpayer money a government can inject into one of its lenders so the aid doesn't amount to unfair subsidies.
Normal insolvency procedures, meanwhile, are ill-suited to deal with banks that are closely tied into the wider financial system and where defaulting on creditors can easily trigger fears about other firms. The untangling and selling of assets during a regular bankruptcy also takes time, which is usually short when a bank threatens to fail. "We have general company law [on bankruptcy], but we have so far no bank-specific law," said Karel Lannoo, chief executive of the Brussels-based Center for European Policy Studies.
The EU is now trying to rectify this situation and in June proposed a new legal framework for dealing with failing banks, which is cited in the Spanish bailout accord as a model. Crucially, the new rules would force national authorities to force losses on—or "bail in"—all creditors, for instance by converting debt into shares, when a bank has to be recapitalized by its governments.
EU officials claim that taxpayer money would have been unnecessary in most bank rescues in recent years had the new rules already existed. But the "bail in" proposal hasn't been approved by EU governments and, even then, is currently foreseen to come into effect only in 2018. That would be far too late for Spain, which is expected to recapitalize its banks by the end of the year.
Bce non commenta voci cambio linea su detentori bond banche
lunedì 16 luglio 2012 10:28
FRANCOFORTE, 16 luglio (Reuters) - La Banca centrale europea non ha voluto commentare un articolo di stampa secondo cui il suo presidente ha raccomandato di imporre perdite ai detentori di bond senior emessi dalle casse di risparmio spagnole, duramente colpite dalla crisi.
La raccomandazione rappresenterebbe un cambiamento rispetto alla precedente posizione della Bce.
Secondo il Wall Street Journal Draghi avrebbe presentato la nuova linea - che contrasta con quella assunta nel 2010, quando si stabilì che i detentori dei bond senior delle banche irlandesi salvate non avrebbero subito conseguenze - nel corso della riunione dell'Eurogruppo, lunedì della scorsa settimana.
Secondo il Wsj, i ministri finanziari della zona euro avrebbero respinto la raccomandazione, sui timori che i mercati finanziari avrebbero reagito male a tale decisione.
Un portavoce Bce ha rifiutato di fare commenti in merito alla discussione avvenuta all'Eurogruppo, aggiungendo che decisioni sulla materia sono competenza dei governi.
"La Banca centrale europea fornisce pareri quando le vengono richiesti", ha affermato un portavoce. "Il parere della Bce punta ad assicurare che il trattamento dei detentori di bond senior sia in linea con le regole dell'Unione europea".
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