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EU insists investors share pain of €37bn Spain bank bailout
Glen_Clark
Posts: 4,397 Forumite
EU insists investors share pain of €37bn Spain bank bailout - link: http://www.telegraph.co.uk/finance/debt-crisis-live/9706604/Debt-crisis-EU-insists-investors-share-pain-of-37bn-Spain-bank-bailout-live.html
Could this sort of thing be a threat to holders of bank preference shares?
Could this sort of thing be a threat to holders of bank preference shares?
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
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Comments
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That's a bit of a political hot potato as preference shares in Spanish banks were widely sold to the general public who in many cases didn't realise that this debt was subordinate to the bonds that the big boys were buying.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
Here is a little more info.
http://www.msnbc.msn.com/id/49858075/ns/business-stocks_and_economy/t/bankia-junior-debt-loss-seen-below-percent-source/
Of course, if debt hierarchies were being correctly observed, the holders of ordinary shares should be totally wiped out, then the preference shares, then the subordinated debt and only then senior bond holders, but such details are mostly ignored nowadays!I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
gadgetmind wrote: »Here is a little more info.
http://www.msnbc.msn.com/id/49858075/ns/business-stocks_and_economy/t/bankia-junior-debt-loss-seen-below-percent-source/
Of course, if debt hierarchies were being correctly observed, the holders of ordinary shares should be totally wiped out, then the preference shares, then the subordinated debt and only then senior bond holders, but such details are mostly ignored nowadays!
Interesting link, Thanks
.
It says (Quote)
Preference shares are a half-way house between a share and a bond
. They do not mature, are not protected by the state's deposit guarantee fund and stop paying out a coupon if the company falls into losses.
Does this mean Nat West and Lloyds preference shares don't pay a coupon when the banks declare their losses?
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair0 -
Glen_Clark wrote: »Does this mean Nat West and Lloyds preference shares don't pay a coupon when the banks declare their losses?
As with everything connected with fixed interest, it's jolly complicated and nearly every issue is different.
LLPC are discretionary and non-cummulative, so the directors can decide not to pay. The only leverage is that this blocks dividends on the ordinaries, which is usually enough to mean it would never happen. The bailouts and EU rules changed the landscape, but future suspension seems unlikely. Lloyds recently issued more ordinaries to fund divis on the prefs, which shows willing.
NWBD needs to be paid unless there aren't retained profits, and failure to pay requires that new pref shares are issued to make up for it. The ratio is such that holders would be quids in if divis were suspended, which is why the EU blocker wasn't enforced.
NWBD should always trade above LLPC/D because of the non-discretionary rules and the pseudo-cummulative nature of it.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
Losses in Spain now confirmed.
"Bankia said holders of preferred shares would face a writedown of 39 per cent, those that own perpetual subordinated debt 46 per cent and investors in subordinated debt with a maturity date would have to swallow a loss of 14 per cent."
Nice to see at least a nod towards capital hierarchy.
Quote from paywalled FT article.
http://www.ft.com/cms/s/0/b5a59122-3951-11e2-afa8-00144feabdc0.htmlI am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0
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