Morning Equity Briefing |
Banks
Delay in banks' recapitalisations looks politically motivated
Stephen Lyons
The announcement yesterday (February 9th) that the €10bn recapitalisation of ALBK, BKIR and EBS will be postponed until after the upcoming election on February 25th appears to us to be a political manoeuvre. At first glance, the headlines of a delay in the injection looked encouraging as the capital needs of the banks are better understood after the results of further stress-testing at the end of March. This outcome neatly ties in with any potential developments coming out of Europe at the EU summit meeting. Also, as we have previously mentioned, the timeline for raising capital ahead of the stress testing makes little sense to us as it limits the banks' capital raising options to further state support (net of liability management).
That the delay in the recapitalisation will only be a short delay appears strange in this context, especially as the announcement indicated that the delay in the capital injections poses no regulatory or stability issues – i.e. there is no pressing solvency need to inject the capital. If there is no pressing need to inject the capital, a delay of a few additional weeks would appear to make perfect sense. Instead, the delay appears to us to be a political exercise – pushing responsibility of the recapitalisations onto the new government.
The fact that the recapitalisation deadline has now proved moveable gives us confidence that logic may take over and we will see eventual confirmation that the deadline is moved back again until the end of March. But the delay in the recapitalisation does create additional uncertainty over the make-up of the capital injections. It previously looked like the outstanding requirement would be provided by state injections after recent liability management exercises. However, given the prominence of burden-sharing of bondholders as an election issue, additional delays suggest further volatility for subordinated and unsecured senior debt prices as the election process rumbles and additional burden-sharing as part of the outstanding recapitalisation is thrust into the limelight.