LONDON, Dec 12 (IFR) - Undercapitalised European banks are
expected to face higher wholesale funding costs in the coming
year as investors start to price in heightened bail-in risk,
market experts said at Citigroup's credit conference on
Bondholders and large depositors in a failing European bank
face taking losses from the start of 2016, two years ahead of
schedule, after European Union officials agreed on Wednesday on
a provisional deal on rules to spare taxpayers from further
Speaking at the Citigroup bank conference in London on
Thursday, Rinse Boersma, portfolio manager at Aegon Asset
Management, said that bondholders had not fully evaluated the
risks associated with haircuts being applied to their unsecured
"I don't think we will see spreads on high and low-beta
names go any tighter and, if anything, next year I think they
will widen out. If there are surprise next year with the AQR, I
think we may see regulators bring bail-in forward even
There has been widespread market speculation that bail-in
measures would be brought forward to 2015 instead of 2018,
as Jens Weidmann European Central Bank Governing Council and
president of Germany's Bundesbank joined a long list of ECB and
German government officials pushing for the early introduction
of bail-in rules last month.
However, the announcement from European regulators about
imposing losses led to some diverging views on how it might
impact the market, but issuers say they are prepared for
investors to begin looking for capital buffers to protect their
senior holdings in 2014.
"We would hope that our strong total capital position would
offer comfort to senior bondholders who will start to
differentiate our pricing to issuers with lower total capital
ratios," said Peter Green, manager of senior issuance at Lloyds.
Danielle Boerendans, head of secured funding treasury at ABN
AMRO agreed with Boersma's views and believes that spreads will
not tighten further next year and that a surprise from the AQR
or stress tests will have a negative impact. For those reasons,
the Dutch bank is planning on front-loading its funding and
completing a large part of it during the first half of the year.
The looming ECB review of bank health in the eurozone is
unnerving lenders and investors alike and risks undoing the
relative calm in the bond markets that has been in evidence over
the past year.
On the whole, analysts and investors appear bullish on
Europe's largest banks, which are expected to pass relatively
unscathed. But the mid-tier, especially in the periphery, is
The upcoming AQR is expected to uncover capital shortfalls
in some of Europe's most troubled banks and, according to
research from RBS analysts, Bank of Cyprus, Abanka, Monte dei
Paschi, Banca Carige, Banca delle Marche and Catalunya Banc are
among those that would come out worst. They said Muenchener Hypo
and IKB in Germany also looked weak.
Their view was shared by Moody's analysts, who said in
October that Italian banks in particular looked weak.
(Reporting by Helene Durand; Editing by Philip Wright)