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The "Der des Ders"

03 April 2017 by pdonnat

When we try to say "this is the very last one", same as the French expression “Der des Ders” spoke about WWI, we should be cautious. The Portuguese government agreed to sell 75% of Banco Novo to the American Private Equity Lone Star for 1BEuros. It is supposed to be the final chapter of the Banco Novo saga with a final capital injection. The same government invested 4.9BEuros in 2014 in the bailout of the collapsing Banco Espírito Santo through a special entity, the Resolution Fund. Ever since, the bank kept accumulated losses on its loan portfolio. The Resolution Fund will take on the loss, not in marked to market, but in liabilities to be jointly repaid by all Portuguese banks over the next 30 years. The government is also committed to add capital if CET1 ratio would fail below 12.5%. The only actual loss is limited to 500MEuros on bondholders who, on a voluntary basis, will get new debt. Most of the invoice is levied onto the next generations. The CDS market reacted to the news with premium wider as the debt exchange could trigger the CDS. This could end the saga of the Banco Esperito Santo CDS, the “Der des Ders” for the CDS. In 2014, the contracts failed to protect correctly the CDS holders. New CDS credit definitions are been used now.
Meanwhile, the credit market was weaker, especially in Europe and its financial complex. The credit indices were well bid all the session long but with limited flows reported.