Big is beautiful

15 June 2017 By Neil Unmack Follow @unmack1

The resolution and sale of Banco Popular used European rules to ensure creditors, not taxpayers, picked up the bill. Investors have responded by dumping debt issued by healthier peers. The risk of bigger losses means smaller lenders will now have to pay more to borrow.

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Junior bonds issued by Spain’s Liberbank fell as low 85 percent of their face value on June 9, two days after European authorities resolved Banco Popular and sold it to rival Banco Santander. The so-called Tier 2 bonds had been trading at a 5 percent premium to their face value on June 6, the day before Popular’s resolution.

Popular’s Tier 2 bonds were rendered worthless after authorities wrote down its non-performing loans and converted junior bonds into equity, which was sold to Santander for one euro.

Liberbank’s 6.875 percent bonds due 2027 were trading at around 92 percent of par at 0925 BST on June 15, and yielded 8.9 percent.

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