The Bail-Ins Are Back! Portugal Slaps Senior Bank Bondholders With €2 Billion Loss

Tyler Durden's picture

A little over a week ago, Portugal announced that for the second time in less than two years, Lisbon would be forced to bailout a large lender. 

This time around it was Banif, the country’s seventh-largest banking group which ran into trouble when it couldn’t repay a previous government cash injection (so really, this was a bailout of a bailout). 

Ultimately, the issue had to be resolved ahead of the new year, when new rules on bank resolutions that would have imperiled uninsured depositors go into effect across Europe. The €2.2 billion cash injection for Banif is set to add at least one percentage point to the country’s budget deficit which is already well wider than Brussels’ target thanks in part to the fact that the cost of last year's Banco Espirito Santo (BES) capital injection had to be placed on the government’s books after Portugal failed to sell Novo Banco (the “good” part of BES) in order to pay back the taxpayer money spent on the bailout.

The auction process for Novo Banco - which at one point drew the interest of “China’s Warren Buffett” - fell apart late in the summer after Chinese bidders became cautious in the wake of the country’s market meltdown and US private equity was reluctant to bid for an entity with a mountain of NPLs and an uncertain future. In short, it wasn’t clear if Novo Banco would need more capital. Well, it turns out that under the ECB’s “adverse scenario”, the bank would need to plug a €1.4 billion hole and so, out of options, Lisbon has decided to effectively bail-in senior bondholders. 

Some €2 billion in bonds will be transferred to BES (which will be liquidated) from Novo’s books. The move immediately raises the bank's Tier 1 ratio to 13.4% from 9.4% previously. If you own anything on this list, you just had a bad morning:

Taking the hit will be institutional investors who bought minimum lots of €100,000. 

When BES was bailed out, senior bondholders and depositors were protected while junior debtholders and anyone stuck with the equity were, well, screwed. As was the case with Banif, if Portugal had waited until the new year dawned, uninsured depositors would have been at risk in any attempt to shore up Novo’s books ahead of a plan to restart the auction process. Ultimately, someone had to pay to make this "good" bank turned bad "good" again.

Here's a look at what happened to Novo Banco 2017s in the wake of the announcement:

And for those wondering just which institutional investors are holding those, here's a list (note that Allianz and BlackRock are right at the top):

“This measure was needed to ensure that the losses from Banco Espirito Santo are absorbed firstly by shareholders and creditors and not by the financial system and taxpayers,” the Bank of Portugal said, in a statement. 

Novo Banco initially said the shortfall identified by the ECB last month would be addressed "with a plan that would include selling assets." Here's what The Bank of Portugal said when the stress test was concluded:

As announced by Banco de Portugal on 15 September, the Board of Directors of Novo Banco has already been empowered to present a plan to strengthen its solvency and implement strategic reorganisation. The plan will include measures to address the shortfall within an appropriate time frame. Amongst others, those measures included the following, to be implemented in the short term with the support of Banco de Portugal and Fundo de Resolução:

  • Sale of Novo Banco’s shareholding in GNB Vida - Companhia de Seguros, S.A.;
  • Sale of other shareholdings which are perceived to be non-core for the bank’s business.

In other words, the idea was to sell "assets" in order to fill the gap on the way to selling the bank itself. Well, someone apparently determined that it would be more efficient to simply force bondholders to fund a capital injection. As WSJ notes, the move represents the first time senior bondholders are on the hook for a banking bailout in the country.

But no one should be worried - well, no one except all of the institutional investors who just got wiped out - because Portugal swears this is the last time capital will have to be injected in Novo Banco. In other words, the sale process will be smooth sailing from here.

Of course the fact that the bank resorted to a bail-in rather than individual asset sales seems to suggest otherwise. As does this:

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Insurrexion's picture

Fuck the Bondholders.

Janet, are you listening?

38BWD22's picture



Bank deposits are fairly similar to bond holdings.  They are a liability of a bank.

Bail-ins (and other confiscations) are likely coming.  It is only smart to have a LARGE amount of your financial assets outside of the banking system.

Even beyond the easy reach of .gov too (eg. gold, BTC).

Soul Glow's picture

Your tax dollars at work.

38BWD22's picture



Yep, + 1.

.gov and Banksters out to do well in good times and BAD.

geekz_rule's picture

just posted this on the other bail in thread.. same applies..



F hayek, neo-liberal economic scam, and a 4 plank plan to monopolize the world:

1) deregulate global financial markets (complete)

2) deregulate global trade (complete)

3) decimate and enslave nation states into bankruptcy with fiat bs ( making impotent to fight fraud, corruption, monopolization) (complete)

4) privatize everything. ( water, food, infrastructure - almost complete)

teach the plebes to blame gubmint, when truthfully, government is merely a proxy, like isis, etc.. for the Oligarchy.

welcome to the unveiling of the only real threat to mankind: Monopolization. west virginia coal mine lifestyles of the enslaved and impoverished! debt slavery, an open air prison, much like gaza for all!

inevitable, for P < P + I 

Harlequin001's picture

There is just no way anybody saw this one comng. None whatsoever.

This is a complete 'bolt from the blue', and I'm shocked, just shocked I tell you...

buzzkillb's picture

Because this time its different, its for the children.

spankfish's picture

"The Bail-Ins Are Back! Portugal Slaps Senior Bank Bondholders With €2 Billion Loss"

Slapped?  More like bitch slapped.

ZombieHuntclub's picture

This only happens in places that don't talk American! ;-) 


Until it does. >:-(

Martin T's picture

With Novo Banco Senior 5 year CDS trading north of 750bps, it will be surely a smooth sale in January  with plenty of bidders lining up for that "jewel"....

slightlyskeptical's picture

Bail-ins, at least in my mind, consists of deposits getting cut. Bondholders getting screwed is the way it is suppose to be.

Exit through the gift store's picture

Lisbon would be forced to bailout a large lender. ..

I love the use of the word forced.



GRDguy's picture

Banksters are sayin':

We lied and we stole. Our government bailed us out.  Life is great for banksters.

We lied and we stole. Our bondholders bailed us out.  Life is still great for banksters.

Heads we win; tails you lose.  (Glad you're still doin' business with us.)

stumbLebum's picture
stumbLebum (not verified) Dec 30, 2015 12:52 PM

This is so scary!  I'm under my kitchen table shaking like a leaf.  I can hardly pry open this can of Mountain House freeze dried food!

I can feel it - the end of the world is nigh.  Are we all dying in a suicide pact tonight?

StychoKiller's picture

Meh, just pull up yer Heaven's Gate blankey, you'll feel much safer! :>D

fockewulf190's picture

Will the "Novo Virus" now spread like wildfire throughout the institutionals?  Yet another Black Swan joins the flock.

Jus7tme's picture

This is not a bail-in. A bail-in is when depositors take a loss. This is just bondholders taking a loss. It is bad, but it is the correct way to do it. Unlike how they did it in the US.

Chris P's picture

Please pay no attention to this news. You must get back to work and keep consuming. You have a broke ass uncle that needs your debt... I  mean help.

Paracelsus's picture

I remember the Argie bond holders made sure they were sold thru NYC therefore

the default negotiations were done in a NYC court.When the vulture hedgies

wanted to holdout to pressure the Kirchner gov't they had a NYC judge in their 

corner.Is that what we will see again here? Look,what happened to Risk Anaysis?

The funds get a high return from these banana republics and sometimes get slaughtered.

The real question is if Portugal was forced to do this then there must be something

very stinky under the carpet.I read where Portugal has a largish civil service much 

like Puerto Rico.Can you say "unfunded liabilities" Boys and Girls? I knew you could..... 

silentlurker's picture

The other comments are correct - this is not a "bail in" as I understand the term.

What I do find interesting is that the SENIOR bondholders took a hit before the JUNIOR bondholders if I read this correctly.

Can someone clarify - I think the order of default is supposed to be unsecured debt, junior, senior, then shareholders - technically the depositors (up to the limit) are protected (Cyprus disproved this). 

nathan1234's picture

the order of default is supposed

Do you actually expect any law to be followed in a financial system controlled by the Banksters and their slave politicians?

If so, you are living in a FOOL'S PARADISE

Herdee's picture

You have a lot of imbeciles at the top of insurance companies that somehow think that bank debt and government debt are safe haven assets.Anybody with a sound mind understands that anything at any level that is run or regulated by any government,including the military is run on the basis of utter laziness and privileged entitlement by those at the top of the pyramid schemes.Banks are just as F'n stupid because they usually hire retired political hacks to somehow manage them in the belief that will help with influencing government.It's all a ship full of drunks and fools waiting for disaster.Most of those at the top of banks and government are psychopaths with the moral standards of a wanted serial rapist.

StychoKiller's picture

I'm sensing some hostility here... :>D

TheAntiProgressive's picture

Forced selling for tax losses.  The interesting one to me is who would have taken on / hold this level of risk for 2.65%.  May they all rot in hell.  I hope the dupes on their books have guns so they can dole out some real "justice".


hedgiex's picture

Someday you save the bondholders and someday you save the equity holders. Still not getting the BS of all these property rights that are like shifting goal posts in a soccer game. Must contagions arise only out of the last drips of blood extracted from preys before others  elsewhere wake up to these "kill" machines.