Britannia Radio

Spain rightly forced to consider bank bail-in

Spain’s economy minister Luis de Guindos recently said bank preference shares should never have been sold to mainstream retail investors. 

It’s easy to see why. Euro zone lenders may be about to force Spain to follow Ireland and impose losses on junior creditors of bailed-out banks, many of whom are retail clients. This would be deeply unpopular and carry risks. But it is the right way to reduce the cost of Spain’s mega bank bailout.

The Irish experience was not pleasant for subordinated debtholders. The government had a powerful stick in the form of new laws that allowed it to change the terms of their securities. Investors recovered on average around 20 percent of face value.

Brussels has decided that Spain’s bank bailout should be accompanied with similar legislation and force junior creditor losses “to the full extent possible” - although it’s not clear what that means. 

BBVA and Santander aside, Spanish banks have 47 billion in subordinated debt, according to Barclays’ estimates. 

Recently bailed-out BFA-Bankia has an estimated 12 billion euros in subordinated debt, including preference shares. 
http://in.reuters.com/article/2012/07/11/idINL3E8IA3A620120711

Spain banks to minimise hit for small investors
http://in.reuters.com/article/2012/07/11/spain-banks-idINL6E8IB7II20120711