The Italian Andrea Enria sends a message of calm to the owners of convertible bonds, who have lost everything with the Credit Suisse bailout: "It would not be acceptable in Europe"
The intervention of Silicon Valley Bank (SVB) and the rescue and purchase of the Swiss entity Credit Suisse have caused significant financial instability over the past week. The message of calm from the European Central Bank (ECB) appeased the markets to a certain extent on Monday and this Tuesday, the president of the Supervisory Board of the Eurobank, Andrea Enria, once again highlighted "the solidity" and good shape of the European banking sector . In addition, he has sent a reassuring message to the owners of convertible bonds, who will lose everything in the Swiss solution: "The cancellation of the contingent convertible capital would not be acceptable in Europe," he stressed. In the same way, he has ensured that the ECB does not contemplate restricting the dividends of European banks.
Despite the fact that 2022 "has been a turbulent year," banks have achieved "record levels of profitability and solid liquidity and capital positions." This has allowed the sector to "weather" the instability caused by the fall of the SVB and contain the "contagion" to the European banking sector. Of course, he has called for caution in the current "climate of uncertainty".
Enria has also ruled out that the ECB is going to establish dividend restrictions on European banks, as was done during the covid pandemic. “We have already reviewed the distribution plans of our banks and they have an aggregate ratio of more than 50%, so they are in a normal situation. We do not see the need to correct our projection of the distributions. I know that there is some nervousness, but we do not consider it, "she assured.
According to the ECB report, risks have increased over the last year and, although the shocks from the war in Ukraine have been contained, inflationary pressure "has been exacerbated", which has triggered exposure in the financial sector. The slowdown in economic activity and the increase in interest rates will affect the indebtedness of companies and households. All in all, the ECB assures that banks "should be in a good position to quickly identify and mitigate the risks of credit exposure to the sectors most sensitive to the current macroeconomic climate."
The monetary policy implemented during the pandemic has provided banks with "abundant liquidity" and reduced their costs. The ECB Supervisory Board will closely monitor the sector and cooperate closely with entities "with the most vulnerable funding bases and those with a weaker liquidity situation."