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Stimano recovery dei subordinati a 7...
SNS Reaal NV - Summary
2013-02-05 13:55:36.812 GMT
SNS Reaal NV - Summary
Background
The Finance Ministry of Netherlands issued a Decree on 1st
February 2013 stating that the securities of SNS Reaal NV and
SNS Bank NV will be expropriated. The securities that would be
expropriated would include Equity, Tier 1, Upper Tier 2 and
Lower Tier 2 products.
The Ministry stated that a number of factors were considered
before taking its course of action. These included:
• Potential additional losses of €1.4bn to €2.1bn within the
bank’s property portfolio.
• The current Core Tier 1 ratio of 7.7% would have been
negatively impacted by these property losses.
• The bank had been suffering from deposit withdrawals, thus
affecting its funding ratios.
• Talks with private investors (buyers) collapsed, thus
rendering the government with little choice.
European Precedents
Northern Rock
100% losses were imposed on shareholders and preference shares
with voting rights. The preferred shareholders have failed
thus far to recover any compensation.
Bradford & Bingley
100% losses imposed on shareholders and preference shares with
voting rights.
Icelandic Banks
Although there was no government expropriation, recovery on
subordinated bondholders were zero. Losses were also imposed on
senior debtholders, with recovery on these instruments of up to
30%.
Irish Banks
Shareholders suffered 100% of losses and Liability Management
Exercises (LME) were conducted imposing up to 95% losses on Tier
1 instruments and up to 80% on Tier 2 debt.
Amagerbanken
Shareholders and subordinated debt holders had zero recovery.
Losses of up to 40% were imposed on senior creditors.
Bankia
Losses are likely to be imposed on subordinated debt. However,
details of this have still not been finalised, with market
participants expecting losses similar to Irish banks.
Other Bank Rescues
Other banks which have received government support but that have
not suffered from subordinated losses include: RBS, Lloyds, IKB,
Hypo Real Estate, Commerzbank/Eurohypo, BayernLB, LBBW, HSH
Nordbank, WestLB, Dexia, ABN Amro, ING and Monte Dei Paschi.
Debtholders within these banks in some cases have witnessed a
suspension/deferral/cancellation of coupon but interestingly not
yet suffered from capital losses (although LME exercises have
been conducted).
Recovery
Any recovery of principal on subordinated debt will be extremely
uncertain both in principal amount and timing. Investors are
likely to take their claim to the Amsterdam Court of Law, where
they will argue that some of the instruments (particularly Lower
Tier 2 bonds) have some recovery value.
The Ministry of Finance will seek maximum bail-in conditions for
subordinated bondholders as per their actions and also the
statement made by the Finance Minister where he stated he would
impose the maximum limit of what was allowed under European
legislation.
At the end of 2011 (according to the annual statements), there
was €5,428m of equity and €1,831m of subordinated debt (equating
to €7,259m). Any recovery of debt instruments will be dependent
on recoveries on the following assets:
• Intangible Assets: €2,179m
• Investments: €31,435m
• Loans and Advances to customers: €67,534m
• Loans and Advances to banks: €2,171m
We believe recovery on intangible assets is likely to be
minimal. Furthermore, the accounts provide little detail on the
quality of the investment portfolio and loans and advances to
customers.
Assuming a total loss on intangible losses and 5% of losses on
both the investments and loans and advances to customers results
in aggregate losses of €7,127m. Hence, under this scenario
subordinated noteholders would likely see a recovery of around
7%. Given, the tremendous uncertainty surrounding the
investment portfolio and loans and advances to customers, it is
difficult to accurately calculate recoveries, but we estimate
this to be between 5-25% based on a range of recovery values.
Read Across
Senior Debt – Given that no losses have been imposed by the
Dutch Finance Ministry on senior bonds, we expect spreads on
senior to tighten marginally further. Governments continue to
be extremely reluctant on imposing losses to senior creditors
particularly in those countries that have adopted the Euro.
Denmark and Iceland (both maintaining an independent currency)
are the only nations in Europe to have imposed losses on senior
creditors.
Subordinated Debt – We expect subordinated debt to widen
marginally given the actions on SNS Reaal. But those banks
currently under government scrutiny such as Spanish Banks and
Monte Dei Paschi could potentially suffer from further widening.
However, within the general framework, the widening of spreads
is likely to be short-lived as investors continue to search for
yield, which will severely limit any spread widening.
Source: iBoxx (22 January 2013)
SNS Bank Covered Bonds
SNS Bank has €4.3bn of covered bonds outstanding, which is AA+
rated by Fitch. The nationalisation of SNS Bank could
potentially result in the covered bonds being upgraded due to
the covered bond now being managed by a better rated
issuer/entity (i.e. the Dutch Government).
We do not envisage any risk to the holders of the covered bonds
have recourse to a pool of assets, which continue to perform.
Conclusion
Given the actions taken by the Dutch Government we would not
recommend investors take any of the following actions:
1. Reduce holdings in Lower Tier 2 instruments within
European Banks – We believe European banks are continuing to
deleverage and improve their balance sheets. As such this
should translate into a tightening of spreads for the majority
of Lower Tier 2 bonds. We would however, tread carefully in
Spanish Banks (particularly those currently controlled by FROB)
and certain Italian Banks (most notably Monte Dei Paschi).
2. Invest in Subordinated SNS Reaal NV and/or SNS Bank NV
debt – Certain investors may be tempted into purchasing
subordinated debt with a view to benefiting from potential
recoveries. However, given the strong language originating from
the Dutch Government and the extreme sensitivity in recovery
values, we would consider this to be an extremely risky
strategy.
