And after Novo Banco they changed the rules…
I Francisco say again…
Call the Interpol…
I rest my case.
Francisco (Abouaf) de Curiel Marques Pereira
(FT) The price of bank debt in Europe’s peripheral countries has fallen sharply since Portugal imposed heavy losses on some Novo Banco bondholders late last month, raising fears that other investors may suffer a similar fate.
While the sell-off partly reflects a broader mood of pessimism since the start of the year, investors say it also shows the Novo Banco move has contaminated the market for weaker banks in southern Europe.
“Certainly for the names that are under stress, whether it is the other Portuguese banks or whether the second-tier Italian banks with very large books of non-performing loans, you have seen some pretty dramatic moves in the way their senior and subordinated bonds are trading,” said Philippe Bodereau, portfolio manager at Pimco.
Portugal’s central bank on December 29 moved five of 52 senior Novo Banco bond issues to the “bad bank” it set up to hold the lender’s toxic assets after a bailout of Banco Espírito Santo in mid-2014.
Since then, the price of bonds issued by some Italian and Portuguese banks has fallen. In Italy, a Monte Paschi senior bond maturing in 2019 is down 3 per cent since December 29, trading at 97.6 cents on the euro. A senior Banco Popolare bond is down 2 per cent since the same date.
In Portugal, Novo Banco bonds that were not hit by the regulator are still markedly weaker. A senior unsecured bond maturing in 2019 is now trading at 85 cents on the euro, down nearly 7 per cent since December 29.
The movements in peripheral markets were sharp enough to have an impact on overall high yield bond markets in Europe. The financials sector of the Bloomberg high yield corporate bond index has fallen 4 per cent since December 29.
Paul Hatfield, global chief investment officer at Alcentra, said his funds have been heavily underweight peripheral banks. “We don’t see any reason to dip our toes in at the moment at current spread levels,” he said. “I don’t think you are adequately compensated for the risk you’re taking.”
“You don’t know what’s going to happen in terms of central bank action, because each country appears to have a different set of rules,” said Mr Hatfield.
The controversy over the Novo Banco move — triggering the threat of lawsuits from investors — has cast a shadow over the start of Europe’s new system for bailing in bondholders of failing banks rather than using taxpayer money to bail them out.
Mr Bodereau at Pimco, one of the asset managers to be stung by Portugal’s actions, said: “There is an important read-across here about the arbitrary and unpredictable nature of resolution of banks in Europe.”
“In Italy, in particular, there are a number of banks there looking for private sector solutions to recapitalise and I think some of those efforts could be undermined by the amount of uncertainty coming out of the Novo Banco precedent,” he said.