Free Republic
Browse · Search
Topics · Post Article

Skip to comments.

European Banks Dump Massive Amounts of Subordinated Debt on Investors ^ | December 20, 2013 | Mike Shedlock

Posted on 12/20/2013 6:36:03 AM PST by Kaslin

The Financial Times notes a Big rise in subordinated debt issuance by EU banks

Banks have taken advantage of yield-chasing investors to issue $90.7bn of subordinated debt for the year to date, a 41 per cent increase compared to the same period in 2012. It is the highest such volume since the $122.4bn seen in 2008 according to Dealogic, the data provider.

The figures follow a deal agreed by European regulators earlier this month that will bring in so-called bail-in rules for senior bondholders from 2016, two years earlier than envisaged by finance ministers in their common position agreed in June.

Banks are also expected to issue record amounts of loss-absorbing contingent convertible – or “coco” – bonds next year, which can either convert to equity or wipe out investors entirely if a bank’s capital ratio falls below a pre-agreed level.

Junior Bonds

An apt description for "subordinated debt" is "junior bonds". From Wikipedia ...

Now that we know what subordinated debt is, it's easy to understand the increase in issuance. It relates to bail-in procedures in the alleged European "banking union".

Laughable Eurozone Banking "Non-Union"

Consider my post on December 17, 2013: Laughable Eurozone Banking "Non-Union"; Expect Disorderly Breakup

Gunnar Hökmark, the lead negotiator for the parliamentary side, said: “We now have a strong bail-in system which sends a clear message that bank shareholders and creditors will be the ones to bear the losses on rainy days, not taxpayers."

Details show the alleged rainy-day fund is a pathetic €12.5bn of joint funds not available until 2020, even though 128 banks covered in the agreement have an aggregate balance sheet somewhere between €26 trillion and €27 trillion.

Also consider "stress tests".

Stress Tests

European Central Bank President, Mario Draghi Says ECB Won’t Hesitate to Fail Banks in Stress Tests.

For details, please consider ECB President Mario Draghi Announces New Stress Tests; Translating "Draghize"

Perhaps the possibility of genuine stress tests, however slight, has sent banks running for cover.

Another possibility is banks are so poorly capitalized that some will fail even with watered down stress tests.

This lead to the key question: If banks are issuing subordinated debt because they need to, why should anyone want it?

TOPICS: Business/Economy; Culture/Society

1 posted on 12/20/2013 6:36:03 AM PST by Kaslin
[ Post Reply | Private Reply | View Replies]

To: Kaslin
Er, what's in your ETF?
2 posted on 12/20/2013 6:44:48 AM PST by proxy_user
[ Post Reply | Private Reply | To 1 | View Replies]

To: proxy_user


3 posted on 12/20/2013 6:51:38 AM PST by Kaslin (He needed the ignorant to reelect him, and he got them. Now we all have to pay the consequenses)
[ Post Reply | Private Reply | To 2 | View Replies]

To: Kaslin

For this type of security, very few are sold directly to individual buyers. If you studied the prospectus, you’d run away.

But if there is a EFT that pays 6% interest, nobody asks too many questions about what’s in it.....until you find out the hard way. Yeah, it’s diversified, they have junk from fifty different issuers.

4 posted on 12/20/2013 7:16:18 AM PST by proxy_user
[ Post Reply | Private Reply | To 3 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794 is powered by software copyright 2000-2008 John Robinson