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UPDATE 1-Fitch analyst says bank bond haircut will hit ratings
January 24, 2013 / 3:41 PM / 5 years ago

UPDATE 1-Fitch analyst says bank bond haircut will hit ratings

(Adds Fitch, Finance Minister comments)

AMSTERDAM, Jan 24 (Reuters) - A writedown of ordinary bank bonds would lower the rating of Western banks, a leading analyst at credit agency Fitch was quoted as saying in a Dutch newspaper on Thursday.

Bridget Gandy, Fitch’s co-head of credit rating for European banks, said that a rating downgrade would follow the disappearance of implicit state guarantees on bank bonds.

Ordinary bonds have the highest priority in getting paid back when a company goes bankrupt. Lower-ranked bonds, such as subordinated bonds, contain greater risk of not being repaid in full.

“If an important country in Europe writes down ordinary bonds of a problematic bank, it means a complete change of how we look at banks,” Gandy said, according to Dutch daily Het Financieele Dagblad.

Dutch Finance Minister Jeroen Dijsselbloem told parliament on Thursday the government wanted all bond holders to participate in a writedown for future bank rescues in Europe.

“The Netherlands’ aim is that we agree on a European level that in the end all debt of European banks are eligible for a bail-in,” Dijsselbloem said.

Bail-in means bondholders contribute to a bank rescue by writing down part of their bonds.

Some Dutch politicians have argued for a writedown of ordinary bonds of troubled Dutch banking and insurance group SNS Reaal, the paper said.

But when Dijsselbloem was asked whether a writedown of bonds would apply to SNS Reaal, he declined to comment.

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

“We say now that the chance is 99.5 percent that the government supports ordinary bond holders. If this assumption proves to be wrong you should no longer look at banks’ current rating but at their viability rating,” Gandy was quoted as saying, without specifically referring to SNS Reaal.

A viability rating, which indicates a credit judgment without implicit state guarantees, can be several notches above or below a bank’s long-term issuer default rating, Fitch said. (Reporting by Gilbert Kreijger; Editing by Elaine Hardcastle)

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