What Europe's First Official Bail-In Looks Like

Tyler Durden's picture

"If you think this has a happy ending, you haven’t been paying attention," warns MINT Partners' Head of Capital Markets Bill Blain, as he reflects on what just happened in Europe (that US equities seem happy to brush off as yet another fleshwound to global instability).

There is a rule in Financial Institutions that any bank that calls itself “popular” generally isn’t. This was proved last night. But, congratulations if you were a holder of Spain’s Banco Popular’s Senior Debt – they did a Zebedee “boing!” on the basis last night’s last minute Santander rescue makes the bonds money good.

Bad news for the Equity and COCO AT1 holders – who have the distinction of holding the first major bank capital bonds to be bailed-in/wiped out under EU regulations. Banco Popular senior debt is 12 points higher this morning.

The AT1 perps are trading at 2.6%, down 50 points!!,and even that price looks optimistic. Ahah. We’ve not seen crashes like that since 2008.

Popular has been desperately seeking a rescue for the last few weeks, but everyone looked the other way. So last night the ECB triggered the “Single Resolution Mechanism” when it determined the Popular’s liquidity crisis was such its equity would be unable to cover debts or other liabilities.

The Single Resolution Board agreed the sale of Popular for One Euro to Santander. Santander will launch a Euro 7 bln rights issue to recapitalise the bank, but that’s not a massive ask for Popular’s business. At one time Pop was the top Spanish bank – a great SME platform, strong retail business and solid management. Now it’s just another name to be restructured and synergised (is that a word?) into the maw of Santander.

Meanwhile, what do last night’s events in Spain say for the number of unresolved Italian banks scrabbling to recapitalise and find relevance? Essentially they face the same problem as Banco Popular – no one is interested to recapitalise them. Italy hope the regulators will approve further state aid and bond sales by Banco Populare di Vicenza (See – another Popular bank about as loved as rabies) and Veneto Banco – but they will require state guarantees – which is a probable No No!

What happens to the Italian banks is very relevant to Italian politics – for years Italian banks canabilised their own depositor bases selling retail savers “savings bonds” which were actually deeply subordinated debt. Let’s wait and and see how this one plays out..

*  *  *

Meanwhile, back in the Land of Not Kansas..

Tomorrow morning I shall leap out of bed full of anticipation! Ah! The joy of exercising my democratic right to kick the Tories out…  (or probably not in this case, cos that would make as much sense as buying an Italian bank…)

Our London flat is in Tower Hamlets, so I suppose I should vote early and often. (It is, allegedly, the most corrupt constituency in the UK.) Of course – for the benefit of the Electoral Fraud Commission - I shall not. I am saving my vote for the afternoon when I go back home to Hamble to vote in the critical Eastleigh Tory/Liberal marginal. (Am willing to supply either candidate with my bank account details.)

About the only thing I’m certain of is Jeremy Corbyn won’t win this election. But, neither will Theresa May – she might even get a triple digit majority, but she’s busted. The internal politics of the Conservatives makes Game of Thrones look like something out of CeeBeebies (preschool Tellytubbesque viewing for 3 yr olds). Apres Theresa le deluge? Boris, or Amber, or worse? (Is there worse?)

The key determinant of tomorrow’s UK general election is going to be turnout. Just about every commentator, instant election expert and prognosticator now agrees the polls are wrong and have been counting the wrong eggs and seeing invisible chickens. One major aspect is over-emphasising the young person vote: they just don’t bother to vote in the same numbers as grown-ups, and they are more likely to support Labour. Moreover, the youth voters are more likely to be denizens of the inner cities, which tend to be Labour seats anyway. The maths is simple – 6 million young people may vote Labour, but if they are all in Central London.. big deal.

The conventional wisdom is a low turnout favours the Conservatives – their older, middle class and affluent voter base take their voting responsibilities to heart. But, weather will also be important – forecast across much of England and Scotland for Thursday is cold and raining, which will likely scare off the unwashed socialist masses from trudging to the polling stations, while Tory grandees will ferry their voters to the ballot boxes in Rollers and Bentleys.  Meanwhile, it will be a decent day in the Tory heartlands of the Home Counties, but also in that seventh circle of Socialist Ferment – London.

And don’t underestimate the significance of postal votes – which have already been cast. They now make up 20% of the vote – and are more likely to have missed the growing “disappointment” with Theresa May’s version of firm leadership. And of course UKIP voters aren’t all complete idiots and some of them will have figured out they are just Tories under a different guise.

I’ll be watching what happens in Scotland – anticipating Nicola Krankie takes a neverendum spanking and losing 10 seats to the Tories, Labour and even the Liberals. That should shut her up for at least a few months till she starts havering about “Freeeeeeeedom” again..

But the truth is, I don’t have a clue about tomorrow. Pretty certain the Tories will win, but Corbyn has proved far better than we initially credited him.

I reckon whatever the bookies are saying is as good a bet as anything. And they are saying Tories to win with a 106 majority..

As Bloomberg notes, the pound could slump as much as 7 percent to $1.20 on Friday, a level last seen in January, should the U.K. snap election lead to a hung parliament, according to a Bloomberg poll of 11 banks and brokerages. While unlikely, an indecisive vote would be marginally more negative than even the Labour Party defying odds to win the election. A victory for Prime Minister Theresa May’s Conservative Party could push sterling to $1.31.

Let’s see what tomorrow brings..

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LawsofPhysics's picture

Allow me to simplify this for you useless overcompensated fucking paper/digit pushers...

"Full Faith and Credit"

 

...perhaps we should NOT have bailed out all these motherfuckers after all and instead given every productive business access to money at ZERO interest!!!!

FreeShitter's picture

We should strung them all up after 08. ALL of them

JRobby's picture

Here is a nicely prepared plate of shit. You will eat it.

NoDebt's picture

"The AT1 perps are trading at 2.6%, down 50 points!!"

Clarification for those of you who may have found that sentence a little confusing.  They are trading at 2.6% OF PAR VALUE (the percentage in this case has nothing to do with it's interest rate).  In other words, they're trading at a 97.4% price discount to face value.  So, for example, if you owned a $1000 bond from this tranche of BP's debt, it's now worth $26.

How, pray tell, can it even be worth $26 when it's just been wiped out to zero under this "bail-in" agreement?  You're gonna need somebody smarter than me to explain that one to you because I got no clue.  

rpboxster's picture

Thanks for the clarification!

Stuck on Zero's picture

"There is a rule in Financial Institutions that any bank that calls itself “popular” generally isn’t."

There is another rule among nations: "Any nation that calls itself "democratic" generally isn't.

CJgipper's picture

I deal in international patents a bit.  I was looking up South Korea country code the other day:

 

http://www.wipo.int/pct/en/texts/time_limits.html

 

 

Which one is south korea?  LOL

poland spring's picture

Rationality hasn't been around since 2008.

JRobby's picture

There is an assumption that certain (not all) bondholders will be paid off simply to stop their miserable complaining? 

That seems like a stretch..................

quadraspleen's picture

It's really simple: It's an EU-mandated bail-in.

Heads we win, tails you lose!

That easier to understand?

asteroids's picture

What I want to know is who owns the "most senior" bonds that have been made money good.

MrBoompi's picture

To be fair the senior debt holders should also get wiped out.  But they, and their oilgarch counterparts, are the ones who are in the postion to decide what happens.  It is an example of the corruption in the securities markets and the balance sheets of certain private corporations.  

armageddon addahere's picture

"How, pray tell, can it even be worth $26 when it's just been wiped out to zero under this "bail-in" agreement?  You're gonna need somebody smarter than me to explain that one to you because I got no clue.  "

 

Short sellers ready to cover when it's cheap enough?

mkkby's picture

If you are goldman sachs you should buy up these bonds for $26.  They will make a killing.  Everyone else will be wiped out.

hvl626's picture

This post is undoubtedly the most astute of all posts. 

Ref. http://farmwars.info/?p=15338 . A FACE FOR THE SHADOW GOVERNMENT

 

 

HenryKissingerBilderberg's picture

We should strung them all up after 08. ALL of them

that is SO anti - semite !

MaxThrust's picture

"We should strung them all up after 08......... that is soo antisemitic"

Not really. He could have said we should have gassed them all with Zyklon B

Greed is King's picture

That was the suggestion of a number of Socialist minded economists; give the Q.E to the public who owed money to the banks, on the condition they used it to pay off their debt, and recoup it via taxation. Unfortunately the Ruling Elite, otherwise known as the Banksters wanted it all, they wanted the Q.E money for themselves at zero interest rates, and they wanted the out of work destitute peasantry to pay back the money owed at punitive interests rates. Cake and Crumbs, both belong to the puppet Politician owning Banksters.

LawsofPhysics's picture

Just to be clear, the bankers and financiers OWN the puppet politicians.

That aside, yes, you would think they know better.  Such "let the majority eat cake" monetary/economic experiments have been tried before...

WhosJohnGalt's picture

Good luck with that garbage.

Try bailing in ETH, BTC, Au, Ag, or Pb.

Oh wait...

stitch-rock's picture

lolz: this was first thought.
Bullish cryptos (phase 1 hedge) PMs (phase 2 hedge) and ammo (phase 3 hedge)

The central planners's picture

Phase 1 will be crap when the phase 2 arrives.

Hillarys Server's picture

My first thoughts too exactly.

As the world Ponzi scheme starts to show its true colors (it's a metaphor Evergreen alumni), people may rush to the biggest decentralized crypto, namely Bitcoin, to get out of the crumbling system.

Then the governments will see the threat of cryptos and crypto holders will get scared and get into the only accessible undervalued remaining store of wealth, silver.

Silver seems near bottom support since it's near production cost. And silver's a by-product of mining copper and other metals which aren't being mined much now because of lower demand with the slowing world economy, so not much new silver is coming on board.

And the inflation adjusted price of silver is at a long term historical low, I think I heard.

Gold is good but I feel strange about spending 50,000 dollars for something so thin it can slip in my back pocket like a train pass. If I work ten years for something I want it to be heavy and obtrusive.

The same amount of 10 kilo bars of silver can be stacked on top of each other like a heavy shiny pyramid that's so heavy that house n-gger Bill Mahr couldn't even lift it if ordered too.

LawsofPhysics's picture

...or, the primary dealers (who have been able to buy as much of ANYTHING they want for 40+ years) already have a significant position in electronic currrncies and "suddenly" your government decides it is okay if you pay your taxes with this digital "money"...

...in fact they may even make it manditory.

The true elite always prepare a "solution" for the sheep's problems.

August's picture

+1 for the Bill Maher reference.  

Shoulda stuck to third-rate comedies.  Come to think of it, I guess he did.

Endgame Napoleon's picture

What about bullishness on tattoo-removal businesses?

spastic_colon's picture

so we all get to bail out/in every bank with this method ad infinitum no matter what country you live in; through the IMF/CB mechanism.

medium giraffe's picture

Despite all previous bailouts being as much use as tits on a fish, this time will be different, promise.

 

Pliskin's picture

I used to date a girl with fish-tits....What are you sayin'?

 

barysenter's picture

All bailouts are useful to the racketeers who set them up & run them.

Greed is King's picture

That`s the Global economy for you.

Ghordius's picture

ehm... no

in case you did not pay attention: this "Banco Popular" bail-in did only use the ECB as authority for the bail-in

you might find many things to dislike about it, particularly among the shareholders and the bondholders, but no savings were touched and no tax payer money had to be coughed up, nor any IMF nor any CB funds

Erek's picture

So, where then did the bail-in bucks come from?

Ghordius's picture

nowhere. stocks and bonds of Banco Popular get shredded to zero. Banco Popular is sold for one euro to Santander. and... that's it

losers -> stock holders and bond holders

not losers -> depositors and taxpayers

LawsofPhysics's picture

Really, and when the bank closes its doors?

Ghordius's picture

eh? what are you talking about? what doors do you have to see closed? Banco Popular branches and offices? why?

LawsofPhysics's picture

Again, I appreciate your optimisim, but let's see if they stay in business.  Even with NIRP from the ECB. Once again you are VERY disingenuous.  Look at the interbank lending rates from the ECB.

Why can't every business access money at the same rate!

Again, fuck 'em.

mkkby's picture

They just lost a big chunk of debt (at 11%!!!).  So their expenses are much lower.  We don't have the fin statements here, but why wouldn't they stay in business? 

If customers don't run it should be fine.  Small depositors are protected by 100k euro insurance. 
The larger ones may get scared off.

yvhmer's picture

Good point. And who are those stock and bondholders?......... 2 months down the road, some Spanish pensionistas will receive a letter saying, their pension has received a 8 % haircut. 

Santander takes over de bank, keeps the look and feel in tact for a while, and after a year or two closes the branches. Thing is, and every and any little Spanish town, Santander and Banjo Popular are already neighbors..... 

I see some influx of new social welfare applications. 

yvhmer's picture

Good point. And who are those stock and bondholders?......... 2 months down the road, some Spanish pensionistas will receive a letter saying, their pension has received a 8 % haircut. 

Santander takes over de bank, keeps the look and feel in tact for a while, and after a year or two closes the branches. Thing is, and every and any little Spanish town, Santander and Banjo Popular are already neighbors..... 

I see some influx of new social welfare applications. 

poldark's picture

And people still holding stocks and bonds in other banks deserve to lose their money.

Ancientkarma's picture

I wrote this nonsense on another comment stack earlier,too early perhaps.bear with me please.Santander buys all the bad debts,for one Euro.forecloses on the best collateral ( over time) and transfers the other parcels to other Eurozone countries ,over time.records the losses in other Eurozone countries and offsets the losses against tax in those Eurozone countries.........just saying maybe now would be a good time to buy Santander shares.

Ghordius's picture

Bill Blain: "... neither will Theresa May (win) – she might even get a triple digit majority, but she’s busted. The internal politics of the Conservatives makes Game of Thrones look like something out of CeeBeebies (preschool Tellytubbesque viewing for 3 yr olds). Apres Theresa le deluge? Boris, or Amber, or worse? (Is there worse?) " LOL

"But, weather will also be important – forecast across much of England and Scotland for Thursday is cold and raining, which will likely scare off the unwashed socialist masses from trudging to the polling stations, while Tory grandees will ferry their voters to the ballot boxes in Rollers and Bentleys.

"And of course UKIP voters aren’t all complete idiots and some of them will have figured out they are just Tories under a different guise."

how quaint. how funny. how... saddening

Greed is King's picture

One thing you left out of your extremely knowledgable but ever so faulty incite of British Politics, the Student vote, the students have become very militant recently and quite rightly so, they will be out in force to vote, they hate the Conning-serve themselves-atives, and they also hate the Blairites; who will they vote for ?.

For my part I`m in a dichotomy, I want Labour to win, but I also want Labour purged of its Blairite element, having both is impossible. The Blairites want a return to the Con-Lab Political Cartel so they can once more plunge their piggery snouts deep in the Westminster corruption trough that Corbyn is denying them. The result is far from certain, but the Student vote could very well decide it, it`s a question of who they hate the most, the Conservatives or the Blairites.

Ghordius's picture

true. left out because I find it depressing (not a friend of FPTP, you see)

"I also want Labour purged of its Blairite element"

please educate me on this: isn't the Blairite element the one faction that is most on the right, in Labour? the pro-biz faction?

Greed is King's picture

Yes, the Neo-Con partners of the Conservatives in the British Political Cartel who in total contravention of the creed of their Party and the mandate given them by the people who voted for them believing them to be Socialists are in truth nothing more or less than self serving trough guzzlers. They are Those that Nicola Sturgeon refers to as Tory Lites. There was a third party in the Cartel, a party of self professed high moral standards and principles, the Lib-Dems, but after going into coalition with the Tories after the 2010 election they proved themselves unworthy by prostituting their professed high moral standards and principles for the trappings of power and the wealth that power availed to them, since then the public have nicknamed them the "whores of Westminster".

As the MP Charles Fox said many years ago when speaking of the Houses of Parliament " While I have no doubt that some members of this house enter Politics for the good of the Nation, the truth is that most of them are here purely to fill their own pockets".

Here endith this brief expose of the sordid world of British Politics.

Joe A's picture

You want Corbyn to win? Seriously?

If that happens then I hope that the EU stays strict on its decision that Brexit once invoked cannot be recalled. God helps us all if that idiot is elected. You will get a muzzie-loving Jew hating middle class hating socialist salvation state. Brrr.