BANK SYSTEM STABILISATIONS
IN EUROPE
NILS MELNGAILIS
CO-HEAD FINANCIAL SERVICES EUROPE
EUROPEAN BANKS
Critical steps to safeguard future viability:
1. Balance Sheets
Honestly evaluate balance sheets
2. Capital Position
Improve capital position
3. Core Business
Identify core and non-core businesses
4. Cost Base
Right-size cost base
5. ERM
Place enterprise risk management at the heart of future strategy
6. Relations
Proactively manage political and regulatory relations
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WHERE ARE THE VARIOUS COUNTRIES ON THIS JOURNEY?
Critical
steps to
safeguard
viability
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6
Evaluate
balance
sheet
Improve
capital
position
Identify
core and
non-core
Right-size
cost base
Implement
ERM
strategy
Manage
political &
regulatory
relations
UK
Ireland
Latvia
Greece
Spain
Cyprus
2
IRELAND
Restructuring Roadmap
Key Issues Still Remain
Government
Guarantee
Blanket Government guarantee of
liabilities
Residential
Mortgages
Residential mortgage arrears still
challenging
NAMA &
IBRC
Establish NAMA to acquire toxic
loans (€74bn) and wind-down
nationalised IBRC (Anglo / INBS)
Remedy
Measures
New mortgage forbearance measures
and personal insolvency to try remedy
the situation
Pillar
Strategy
Creation of the Pillar Bank strategy
(AIB/EBS & BOI) & standalone
PTSB
Deposits
Deposits stabilising with focus on
weaning off ECB funding
ECB & ELA
Reliance on ECB & ELA (now
c.€120bn) to ‘plug’ deposit flights
SME Credit
SME credit still at key component for
employment growth
Regulation
Robust and intensive regulation
Reorganisations
Bank business model redesign and
cost reduction to continue
3
GREECE
Recent Developments
Piraeus Bank & ATE Bank
Sovereign
Crisis
Sovereign financial crisis has led to
a substantial pressure on the
banking system
Takeover of
ATE Bank
Piraeus, 4th largest Greek lender, to
acquire the healthy assets of the statecontrolled Agricultural Bank of Greece
Deposit
Flight
Deposits reduced from €280bn to
€235bn in the last three years
Strategy
Piraeus will operate the restructured
bank
First
Bailout
First bailout of €110bn from the EU
and IMF in May 2011
HFSF
Funding
Gap between assets transferred to
Piraeus and ATE bank’s liabilities
covered by HFSF
Second
Bailout
Second bailout of €130bn in March
2012
Further
Capital
Injection
HFSF to also provide capital injection
for Piraeus following the takeover
4
SPAIN
Recent Developments
FROB / AMC Creation
Large RE
Exposure
Financial institutions ‘exposure to
real estate is c.35% of GDP
FROB
Creation of FROB to reorganize the
Spanish Banking Industry
Liquidity
Scarcity
Extremely scarce, heavy reliance on
Eurozone funding
Initial Capital
of €9bn
Initial capital of FROB amounts to
€9bn
State Aid
€30bn fund to purchase high quality
covered bonds and ABS
€63bn securities issued by banks
with state-guarantee
Royal Decree
Law
Spain approved the broad regulatory
framework for its proposed AMC
AMC
Creation
Decision to create a nationwide AMC
First 4 Banks
to Transfer
Assets
BFA, Catalunya, NCG and Banco de
Valencia to transfer their impaired
assets to AMC
International
Pressure
Pressure on Spain to seek bail-out
through new ECB approved bondbuying program
Eurozone
Funding of
€100bn
AMC to acquire assets at a very heavy
discount, with €100bn of European Aid
5
CYPRUS
Recent Developments
Bank Rescues
Huge
Exposure to
Greece
Disproportionally large, carrying the
risks of €23bn in private-sector
Greek debt
Heavy
Losses in
2011
Two largest financial institutions, Bank
of Cyprus and Popular Bank, recorded
heavy losses in 2011
Oversized
Banking
System
Banking system 8.9x size of GDP
compared to 3.5x EU average
€3bn Losses
from GGB
Haircuts
53.5% haircut on the nominal value of
the GGB’s resulted in losses of almost
€3bn of the two banks, c.20% of GDP
High Level of The financial system is highly
concentrated with commercial
Concentration banks owning 66% of total loans
Bank of
Cyprus
Bank of Cyprus announced that it
would require capital support of €500
million
Dominance of The three largest banks account for
three Largest c. 98% of total domestic
Banks
commercial bank assets
Cyprus
Popular
Bank
Cyprus Popular Bank, the most heavily
exposed to Greece, needs €1.8 billion
6
DE-COUPLING THE BANKING SYSTEM FROM THE SOVEREIGN SYSTEM
De-coupling the banking system from the Sovereign system in order to enhance
control mechanisms and improve conditions.
ECB Bond Buying Program
 Conditions
Pan-European Bank Supervisor
(Banking Union)
 Participants (top banks or all banks)
 Role of local regulators
 Conditions
ESM equity stakes in banks
 Valuation of stakes
 Retrospective actions
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United Kingdom
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