SNS Reaal subordinated bonds hit by loss fears

Thu Jan 24, 2013 8:17am EST

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LONDON, Jan 24 (IFR) - Dutch banking and insurance group SNS Reaal's subordinated bonds have widened sharply on concerns that a possible nationalisation of the group will force bondholders to bear losses.

The bank's 11.25% perpetual bond, callable in November 2019, is 73bp wider on the day, having widened 200bp on the week, while its 6.258% perpetual issue callable in July 2017 is 85bp wider on the day and 232bp wider on the week, according to Tradeweb.

The bonds are trading on a cash price basis, bid at 45.5 and 34.6 respectively, around 10 points lower than on Wednesday morning when a report in De Telegraaf said nationalisation was a "serious option".

The issuer's senior bonds have also widened by up to 30bp, although bankers said that senior bondholders were unlikely to suffer losses.

"The Dutch government is certainly not as cash strapped as some others, so it's difficult to see a situation where it would not protect senior bondholders," said one banker.

"There's more chance that subordinated bondholders will bear losses, but you would expect senior to be weaker while this uncertainty persists."

When Ireland needed a bailout because of its troubled banking sector in 2010, the ECB insisted no senior bondholders should suffer losses, against the wishes of the Dublin government, because of concern about the market reaction.

So far, Spanish senior bondholders have also been protected for the same reason.

Another banker highlighted a bail-in regime in Denmark, which resulted in a sharp spike in bank funding costs after losses were imposed on senior bondholders. Following that market reaction, the bail-in language was removed.

"The Netherlands is quite advanced in its resolution framework, but it would not be helpful for issuers to impose losses on senior bondholders," he said.

SNS Reaal, which received EUR750m of state aid in 2008 at the height of the financial crisis, is widely expected to require a second state bailout because of problems at its property unit, and is due to come up with a restructuring plan next month when it reports earnings.

SNS Reaal's property finance exposure, including commercial real estate loans to small and medium-sized companies, stood at EUR9.8bn at the end of September, of which EUR2.3bn was non-performing loans.

It has booked more than EUR1.3bn of net losses on its property loans since 2009.

Measures may be taken within the next few days to rescue SNS Reaal, the country's fourth-largest bank and which is suffering property losses, the paper said on Wednesday, citing unnamed political and financial sources.

An SNS Reaal spokesman said: "We are looking at several scenarios with several stakeholders, and no decision has been taken yet."

The first banker also pointed out that there is value in different parts of the group, which was another positive for senior bondholders.

SNS Reaal's banking operations would remain in state hands for the time being if there were a nationalisation, while its insurance operations could be sold now or in the future, the Dutch paper said. (Reporting by Natalie Harrison, IFR Markets; Editing by Alex Chambers and Julian Baker)

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