Per finire, oggi è stata una giornata nera per tutte le subordinate...
Lloyds Leads Bank-Bond Drop on State Rescue Concern (Update3)
By John Glover and Abigail Moses
Feb. 16 (Bloomberg) -- Lloyds Banking Group Plc led a decline in the value of subordinated bank bonds to a record low on concern governments will be forced to nationalize lenders to save them from collapse.
The average price of the securities in Merrill Lynch & Co.’s Euro Sub-Debt Tier 1 Index fell to 41.5 from 64.5 at the end of 2008. The value of the 103 securities with a face value of 64.85 billion euros ($83 billion) contained in the gauge declined to 25.6 billion euros. London-based Lloyds was downgraded by Moody’s Investors Service today, which cited higher risk at the bank.
“Most probably there will be no other solution than to nationalize banks and politicians are preparing for that,” said Philip Gisdakis, head of credit strategy at UniCredit SpA in Munich. “We will see a significantly higher number of nationalized banks.”
Lloyds, Bank of America Corp. and Germany’s Hypo Real Estate Holding AG are all in danger of coming under state control as losses mount, according to Gisdakis. Republican Senator Lindsey Graham, who sits on the Senate Budget Committee, said yesterday he wouldn’t reject the idea of nationalizing U.S. banks.
Tier 1 securities are sold to bolster bank capital and are designed to cushion senior bondholders and depositors against loss. In a state takeover, holders of the securities would be among the first in line after equity investors to be wiped out or forced to take a loss.
Senior Rating Cut
Lloyds had its senior debt rating cut three steps to A1, six levels from the top, by Moody’s after the bank forecast a 10 billion-pound ($14 billion) pretax loss at its HBOS Plc unit last week. Lloyds agreed to buy HBOS, the U.K.’s largest mortgage lender, in a government-brokered transaction in September. The rating of Lloyds TSB Bank, the main banking unit, was reduced from the top Aaa to Aa3, and its Bank of Scotland unit was downgraded from Aa1 to Aa3.
The Markit iTraxx Financial Index of credit-default swaps on the subordinated debt of 25 European banks and insurers, which gains as perceptions of risk increase, jumped 14 basis points to 214, the highest this year, according to JPMorgan Chase & Co prices.
Lloyds Debt Risk
Credit-default swaps on Lloyds subordinated debt climbed 16 basis points to 230, the highest in more than four months, according to CMA Datavision prices at 5:30 p.m. in London. Contracts on the bank’s senior debt rose 17 basis points to 159.
The 13 largest decliners in percentage terms in the Markit iBoxx Sterling Corporates Index of 757 bonds today are all securities sold by units of Lloyds. The biggest slide was in Lloyds’ 410 million pounds of undated 5.625 percent notes, due to be called in July 2010, which fell more than 28 percent to 50 pence in the pound, according to Royal Bank of Scotland Group Plc prices on Bloomberg.
“All you have out there are sellers,” said Phil Roantree, a portfolio manager at New Star Asset Management in London. “Bank subordinated bonds are very widely held so this is going to hurt. Institutions are really going to feel the pain.”
Lloyds shares, which opened down by as much as 22 percent, rallied after Stephen Timms, chief secretary to the Treasury, told the British Broadcasting Corp. the government is “not contemplating” nationalization. The stock was down 8.1 percent at 56.4 pence as of 5:37 p.m. in London.
Shares of Bank of America Corp., the buyer of unprofitable Merrill Lynch and of mortgage lender Countrywide, have collapsed, falling about 60 percent this year on speculation that the government might seize the company.
Hypo Real Estate
In Germany, Chancellor Angela Merkel said at the weekend that Hypo Real Estate, which has already received 102 billion euros from the state, is the only bank that may be nationalized. A government takeover would be an option only after all other alternatives are exhausted, she said.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.
Contracts tied to Fortis’s subordinated debt increased 67.5 basis points to 325, CMA prices show. The senior debt rose 27 to 202. Swaps on the junior debt of Munich Re, the world’s biggest reinsurer, increased 4 to 128.5 and the senior debt rose 4.5 to 57. Contracts on Zurich Insurance Co.’s subordinated bonds were 8.5 basis points higher at 145 and the senior debt was up 9.5 at 114.5.
Swaps tied to subordinated bonds of Banco Sabadell SA, the largest commercial bank in Spain’s Catalunya region, climbed 45 basis points to 510, CMA prices show.
---Editor: Michael Shanahan, Paul Armstrong
To contact the reporter on this story: John Glover in London at
[email protected]
Last Updated: February 16, 2009 12:39 EST
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