All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group
CommentP&M Notebook

P&M Notebook: national champions

Different countries treat their banks differently, but rarely has that been clearer than last week. The week closed with Italy agreeing to hand Intesa a fat cheque, a free option and state blessing to consolidate its hold on the banking system. The UK, though, started criminal prosecution of its own ‘national champion’, with the Serious Fraud Office unveiling its fraud allegations against Barclays.

It’s hard to imagine a more baroque and absurd system of bank supervision than that which obtains in Italy today. A European regulation intended to prevent bailouts, and rules on state aid, have proved so inconvenient and onerous to apply that a formerly solvent bank, Monte dei Paschi, has been driven to….a state bailout, following a year of uncertainty and the draining away of confidence.

That same set of rules led to the creation of two “private sector” bailout funds to which the rest of the banking system has been obliged to contribute, neutralising concerns about contagion and systemic risk by… spreading the risk of failing banks across the rest of the sector.

As for state aid and avoiding bailouts, by some extraordinary alchemy Intesa has been handed nearly €5bn in cash and €1.5bn in guarantees to help it acquire €26.1bn in performing loans and €8.9bn in financial assets from Veneto Banca and Banca Popolare di Vicenza. While Santander stumped up €7bn to provision Banco Popular when it took it over, the Italian state is coming up with most of the money to help Intesa.

Intesa itself has stumped up a euro, which ought to pay for the espresso needed to get one’s head around how exactly the Italians will swallow this.

However taxpayers feel about it, the move is positive for the Italian banking system in general and Europe more broadly — state cash and forced restructuring would have been useful, say, five years ago, when Spain was pushing its cajas to merge backed by cash from the FROB. The Italian banks have been conspicuous by their failure to restructure ever since, but better late than never.

The knotty problem of how to avoid hurting retail bondholders also seems to have melted away, in the case of Veneto and Vicenza. Though subordinated debt in the two banks will be stung (as in the Popular resolution), by remaining with the “bad bank” full of NPLs rather than being transferred as part of the Intesa acquisition, retail sub debt holders (to the tune of €200m) will be compensated.

For much of last year, how to avoid hurting retail while hitting institutions seemed to be the main obstacle to progress in cleaning up Italy’s banks. But that, like so much else, seems solvable if one throws enough money at the problem.

At Barclays, the situation is very different — possibly because the bank is still trying to shift its public perception as a free-wheeling, swashbuckling fixed income trading house packed to the gills with aggressive tax structurers and dodgy derivatives positions.

Anyhow, the Serious Fraud Office thinks it is now in a position to finally claim a few crisis-era scalps, in relation to the bank’s capital raisings from Qatar and Abu Dhabi. The full details of the claims will come out in court, but the case is about disclosure of the substantial “advisory fees” associated with the capital increases, and the more vexed issue of whether Barclays lent Qatar the money to invest in the bank’s shares.

The latter claim is more troubling — it raises the issue of how accurate Barclays’ reported capital position in 2008 actually was — but it’s also hard to figure out what the point of such a loan might have been.

If the loan was a full recourse loan, then there’s not such an issue — should Barclays have collapsed in 2008, the loan would still be facing Qatar and expected, therefore, to pay back in full. But there’d also be little point. Qatar is not short of cash, and, indeed, struggles to deploy its sovereign wealth in full. Why would it take on a Barclays loan costing more than the US Treasuries where it parks its cash.

If the loan, however, was non-recourse and backed only by Barclays shares, then surely it would never have even been suggested. The accused at Barclays were all experienced corporate financiers and would know perfectly well that public companies cannot lend money out to buy their shares. Even in the fevered environment of late 2008, it seems unlikely this would have been on the agenda.

In short, the court cases are going to be interesting.

Barclays and the individuals named in the SFO's charges have so far contested them.

On the people side, GlobalCapital has caught wind of a few movements in the ABS market. BNP Paribas is bulking up its “asset finance and securitization” syndicate to three people — the French bank syndicates reserve-based lending, infrastructure and other structured loans alongside its flow securitizations, so there’s plenty of work to go around.

Credit Suisse’s head of asset finance, Vaibhav Piplapure or VP, has left the bank (though to become a client, rather than a rival). He’s heading to M&G to help the asset manager start a business buying consumer asset pools out of the banking system, and adding leverage through securitization. He follows Jerome Henrion, CS’s head of financial solutions, who quit in early June and starts there in August.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree