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BES 'bail-in' tests EZ resilience

Monday, August 04, 2014 - 02:20

BES 'bail-in' tests EZ banking resilience; HSBC says risk aversion is bad for business; DB reportedly under more scrutiny over Libor. David Pollard reports on the market-moving headlines from Europe's banking sector.

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It's only months since it came out of its EU/IMF bailout programme. This, then, could be Portugal's first test of whether it can keep its own house in order. Announced in Lisbon, the rescue plan for Banco Espirito Santo comes after weeks of increasingly bad news. First reaction was seemingly one of relief - though Tom Vosa of NAB believes it may not be the end. SOUNDBITE (English) TOM VOSA, HEAD OF MARKET ECONOMICS, NATIONAL AUSTRALIA BANK: ''It may be a one-off for Portugal but we would expect to see perhaps further banks to come under pressure for raising capital. And what we do know is that if private markets are not there to provide it, then governments have to step in.'' BES shares dropped 75 per cent last week - the bank losing access to liquidity after it reported a record loss of 3.6 billion euros. Under the plan, BES will be split into a "good bank" called Novo Banco. It'll be recapitalised to the tune of 4.9 billion euros. And a "'bad bank" to house exposures to the Espirito Santo business empire and to an Angolan subsidiary. Junior bondholders and shareholders will share the losses - but not depositors. And nor will senior bondholders - and that's raised some eyebrows because of plans from the European Commission to make them share in the losses. George Hay of Reuters Breakingviews. SOUNDBITE (English) GEORGE HAY, EDITOR, REUTERS BREAKINGVIEWS: ''The key difference between what has happened and what could have happened if they'd followed these new European bail-in regime's ideas is that senior creditors could have been bailed in.'' As it stands now, the rescue fund is ultimately public money - but money, it's promised, the public will get back from the sale of the "good bank". Though nobody can yet say when a sale might take place, or how much the ''good bank'' will be worth. Elsewhere, eyes were on Deutsche Bank - and a report that regulators are stepping up their investigations against it. German magazine Der Spiegel says investigators want to determine when co-chief exec Anshu Jain first learned of alleged attempts to manipulate benchmark interest rates. For its part, HSBC is warning that a growing weight of international regulations is discouraging staff from taking risks. Chairman Douglas Flint spoke of a "zero tolerance of error" as individuals strove to protect themselves and the firm from future censure. The statement came with news of a 12 per cent drop in pretax profits to the end of June.

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BES 'bail-in' tests EZ resilience

Monday, August 04, 2014 - 02:20