Managing Turnaround of the
Slovenian Economy: Restructuring of
Banking, Corporate and State Sectors
Prague, November 2013
prof. Marko Simoneti
marko.simoneti@pf.uni-lj.si
Content
Background on Slovenia:
- economic transition and domestic ownership,
- current financial and economic conditions
Bad bank approach to bank rehabilitation
Restructuring of the corporate sector
CG in the SOEs, Privatization and FDIs
Public sector Debt to GDP
State bailouts and financial crisis
Too important to fail (externalities!)
Do nothing, “Zombie banks” and economic activity
Act quickly and strongly !
Everything was possible, but not any more !
EU Banking union:
supervision, resolution, deposit insurance
Protecting government budgets from banking crisis !
Moral hazard in banking bailouts: who should pay ??
EU bank resolution in the future
Special regime for troubled banks (2016?)
Burden sharing: shareholders first, non-secured
creditors second, taxpayers last,
Restructuring tools by authorities:
- Sale of the business on behalf of shareholders
- Set up the bridge bank (the good bank approach)
- Separation of bad assets (the bad bank approach)
- Bail-ins of unsecured creditors
Create Good bank !
Troubled bank transfers good assets and deposits
on its 100% owned new Good bank
Bad assets and non-secured liabilities stay with
the Old bank which has to be liquidated
Owners and non-secured creditors pay the bill
State funds (if needed at all) go to Good bank
Modern solution for leveraged banking!
Seite 11
Good bank approach
Good Bank
Stara
Assets banka
Labilities
Good assets
A
Old bank
Assets
Debt 1
1.
Starting capital
Good assets
A
2.
STATE CAPITAL INCREASE
1) Transfer of good assets and secured
deposits
2) State capital increase in Good bank
3) Liquidation of Old bank
Liabilities
Debt 1
Debt 2
Debt 3
Bad asssets
XY
Debt 4
Capital
3.
Create Bad bank
Separate troubled assets from good assets
Recapitalize troubled banks and start new lending by
the “problem free” banks
Restore market confidence in the “problem free”
bank: refinancing and recapitalization
Better management of bad assets
Bad assets: NPLs, non-core assets, toxic: difficult to
value or sell?
Bad bank approach (BAMC)
Bad bank
Assets
Laibilities
Bad assets
XY
Bonds
Old bank
Assets
Liabilities
Debt 1
Good assets
A
Debt 2
1.
Debt 3
1) Transfer of bad assets with discounts
2) Write offs of capital and subordinated
debt and forced conversions of debt
3) State capital increase in Old bank
Bad assets
XY
Debt 4
2.
Kapital
3.
STATE CAPITAL INCREASE
Current status on bank rehabilitation
and sequencing of structural reforms
AQR, stress testing and assets transfer on BAMC
Big banks recapitalized, small orderly closed down
Government financing: on the market or troika?
Fiscal consolidation
Corporate sector: active management of NPLs
and deleveraging as a precondition for growth
Re-nationalization of the economy, Corporate
governance and privatization
Perfect storm for corporate balance
sheets in the crisis
High leverage:LBOs and Financial holdings
Debt financing of speculative investments
Short term financing of long term projects
• Stop on foreign financing of banks
• Recession and export revenues down
• Collapse of the balance sheets:
real estate (-30%), capital markets (-70%)
NPLs in banks are a mirror picture of
corporate debt overhang in Slovenia !!
Figure 1: Distribution of financial debt of industrial companies in
Slovenia according to Debt/EBITDA in 2012 [v mio EUR], AJPES
Institutional framework for workouts
Out of court restructuring is the way to go
(flexibility, speed, costs,..)
Insolvency regime is the benchmark:
- Compulsory Consolidation (CC)
- Liquidation
Main problems:
- CC abused by debtors and owners-managers
- CC complex and time consuming
- Collective action by banks
Modernizing the insolvency law (1)
Survival of the debtor vs best repayment for creditors
More powers to creditors: start and lead the process
Write-offs for shareholders if liquidation value negative
APR rule based pay-offs
Inclusion of secured creditors and adequate compensation
(split of claims into secured and non-secured part)
Pooling of collateral
CC for a selected group of creditors and shareholders
Modernizing the insolvency law (2)
Automatic stay and super priority for new financing
Spin offs to Good Co. and liquidation of Bad Co.
Pre-bankruptcy procedure for large firms and financial
creditors
Limited capacity of Courts: small number of creditor
classes, no Court fairness hearing ??
Complexity of the rules ??
Limited capacity of insolvency administrators ??
Can bank creditors play the active role ??
No forced debt to equity conversions (Germany) ??
Collective action by bank creditors ??
New lead bank and consolidator: BAMC !!
Re-nationalization of the corporate sector
BAMC is run by foreign experts and might be partially
privatized/financed on the market
Ljubljana banking club rules
AQR and new reality in valuating corporate loans
New insolvency rules
Temporary debt to equity for banks ??
Financial vs. operational restructuring by bankers ??
FDIs and political will for the structural reforms ??
THANK YOU FOR YOUR
ATTENTION.
marko.simoneti@pf.uni-lj.si