Talk is cheap, resolutions are not
Market participants should be following closely the tactics, if not the arguments, of investors that lost out in the Novo Banco retransfer two years ago.
BlackRock, Pimco, Attestor Capital and CQS were among accounts invested in five Novo Banco senior bonds that the Bank of Portugal in effect zeroed in late 2015.
The move was controversial. Of Novo Banco's 52 senior bonds, 47 escaped being transferred back to the failed lender Banco Espírito Santo, laying waste to the hitherto sacrosanct market principle that holders of the same asset class should retain equal standing within the resolution hierarchy.
The affected bondholders have done exactly what you might expect them to do — hire lawyers and take up the case in the courts.
But this month they have also intensified their efforts to win hearts and minds in the media.
The bondholders are clearly hoping to maintain a high profile in the international press. After all, their operations continue to be spearheaded by Greenbrook PR, which proclaims its expertise in managing “reputational issues”.
To this end, The Novo Note Group is already enjoying some success.
Shortly after setting up the site and Twitter account, the group had attracted coverage in the Portuguese media and in the Financial Times. Scrolling through its list of 50 new Twitter followers, market participants should be unsurprised to see that 41 of them are involved in journalism.
The bondholders argue that the issues they are confronting go beyond the specifics of the Novo Banco retransfer: that they are fundamentally important for anyone interested in how the Bank Recovery and Resolution Directive might interact with the legal rights of creditors.
This is partly why market participants should be paying keen attention to tactics that The Novo Note Group has started to employ.
The Bank of Portugal’s mishandling of Novo Banco may have been among the first controversies to result from handing resolution authorities powers to write-down and restructure bank debt, but it won’t be the last.
Banco Popular springs to mind. When the Spanish bank failed last summer there was a flurry of legal activity, as investors prepared to ask big questions about transparency, liquidity and property rights.
But the investors taking action over Banco Popular have largely reserved their arguments for the courts and the courts alone.
Should The Novo Note Group succeed with its latest approach in influencing Portugal to take action, it will be another new front in bank collapse litigation — the social media war.