April 22, 2021

The demands of the anti-crisis mattress will change the European banking map | Companies

The demands of the anti-crisis mattress will change the European banking map | Companies

The demands of the anti-crisis mattress will change the European banking map

One of the biggest concerns of banks today, especially the median, is how to build the anti-crisis debt cushion MREL by its acronym in English), as recognized by supervisors, analysts and the financial entities themselves. The Minimum Requirement of Eligible (MREL) affects all European banks, and is the cornerstone of the new resolution framework for financial institutions.

The problem can be so worrisome for some medium-sized entities, that there are already reports of experts talking about a foreseeable and significant change in the European banking map for this reason, with the disappearance of several entities, which would be absorbed by others. larger size as it can not cope with the new capital and liability requirements, which is added to the annual requirement to maintain its solvency or SREP. The ECB, in fact, will inform the bank of its new capital requirements for SREP a few days before the MREL.

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These experts, and even supervisors, currently maintain that several banks totally unknown in the market, will not be able to carry out the necessary emissions to comply with the MREL, since they will be required remuneration prices so high that it will be impossible to pay them, says an outstanding knowledgeable financial source of the situations of each financial institution in Spain.

Hence, he speculates with the future disappearance through mergers of several banks in Spain, and together in Europe. In the same period, all banks with a balance of more than 30,000 million will jointly issue between 150,000 and 175,000 million euros, of which about 50,000 million will correspond to Spanish banks (60% more than half). to BBVA, Santander and Sabadell).

The Single Resolution Board (JUR) will communicate in two or three weeks to the different medium or large banks with little presence outside their country of origin the requirements of capital and liabilities required to face future crises and rescues by themselves in bankruptcy case, without resorting to public aid as happened in the past.

Only the medium-sized entities, Bankia and Caixabank will need to place 25,000 million

In Spain, the communication affects Bankia, CaixaBank, and the rest of medium-sized banks, such as Ibercaja, Kutxabank, Cajamar, Liberbank, Unicaja, Abanca, Bankinter, all of which have a presence almost exclusively in the domestic market. Banco Santander, BBVA or Banco Sabadell already know their minimum requirements own funds since last May, since the JUR informed in advance all European entities with a significant presence outside the euro zone.

In these last three cases, and above all Santander and BBVA, it seems that they have no difficulties in meeting these requirements, as they have explained on several occasions, and that it almost doubles their capital, for what they initially have four years, although the date it will be determined by the JUR on a case-by-case basis. Initially it was until 2022, for the big ones and 2024 for the rest, but now the JUR has modified the calendar, although it is not closed.

Issuance of Bankia

The smallest, to liquidation if they go bankrupt

Credit cooperatives. The smaller entities, those that are directly supervised by the Bank of Spain, are also affected by MREL requirements. However, given the lack of experience and lack of knowledge of the market of these entities, such as credit cooperatives, they would initially be relieved from making issues to complete their capital and liability cushion to cover losses in the event of bankruptcy. The objective is that these entities, if they were to go bankrupt, would be liquidated, although before reaching this point they would try to be absorbed by another firm.

In extinction the medium bank. Financial experts say that at the end of the MREL process it could be the case that only large and small entities remain, and the medium ones disappear.

Emissions that compute as MREL. The mattress that each bank must build is based on its size, risk, and other particular characteristics. It is expected that the emissions market will be boosted this year, especially those that have the capacity to assume losses, such as coconuts, subordinated debt and senior non-preferred debt, although it will also compute, but in a small percentage of 2 , 5%, of senior debt.

A priori Bankia and CaixaBank should not have too many problems to fill this cushion, since they have a long experience in issuing and markets know them well enough. Bankia, in fact, made an issue of 1,000 million euros to ten years yesterday that serves as capital and to complete its MREL, at a price of 3.75%, slightly cheaper than another issue of Banco Sabadell from November to 5.4 %. But the coupons seem to rise, since CaixaBank placed in January an issue of 1,000 million at 2.375%, while a few months earlier it had done it at 2.25%.

In favor of the issuances of these medium-sized entities is that the supervisor will be more flexible on the date to complete the cushion that serves to assume the possible losses of an entity in case of bankruptcy, and each one will give them a different date.

Different case is that of the medium bank as Ibercaja, Kutxabank, Cajamar or Abanca. These four entities are not listed, which is why their anti-crisis debt issues can be quite expensive. The entity chaired by Juan Carlos Escotet, for example, has carried out two issues with this objective, but has had to include a coupon of 7.5% for the issue of debt AT1, and of 6.125% for the tier2.

Cajamar's only issuance of securities that account for the MREL added an interest rate of 9%, the same as that made by the now defunct BMN. Ibercaja has placed on the market a few weeks ago in the market at a rate of 7%.

Bankinter, initially it does not have to have problems, since its trajectory in stock market is very extensive. In cases of Liberbank and Unicaja, also quoted although their respective returns are low, and that is also taken into account by investors.
Both entities already plan to issue 600 million euros in subordinated convertible debt (cocos) before their merger.


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