Week in Review

AFME sees European Banking Authority’s €135.1 billion, raises to €300 billion

Last week’s report noted that the European Banking Authority’s finding that Europe’s biggest banks’ capital requirements would rise by almost a quarter, creating a €135.1 billion collective shortfall, under final Basel III international standards based on conservative assumptions, if the banks had to immediately comply with the requirements.

The Association for Financial Markets in Europe (AFME) this week issued a report saying the Basel III requirements would more likely result in a capital increase of €300 billion. The report calls on EU regulators to ensure that its implementation of the Basel agreement does not result in additional capital requirements following the already very significant increases resulting from the post-crisis reforms.

Greeks bearing Tier 2 gifts

We noted in our 4 June report that although Greek banks stocks had performed very strongly in 2019, a key test would be whether investor confidence would extend to Tier 2 issuance at an interest rate below 9%. There was therefore some disappointment at the 9.25% coupon Piraeus had to offer investors, particularly when we consider that, for example, Unicredit and UBI Banca issued Tier 2 debt at an interest rate closer to 5% earlier this year.

Today, following two days of meetings with investors in London, National Bank of Greece (NBG) successfully completed the pricing of €400 million of Tier 2” Subordinated Notes at a yield of 8.25%. The transaction marks another step on the road to normality in the Greek banking sector.

MPs vote to make a no deal Brexit harder

On Tuesday 9 July, MPs passed – by one vote – a bill which will require ministers to report every two weeks on the progress towards restoring power sharing arrangements in Northern Ireland from October until December. While this does not block the incoming Prime Minister from suspending Parliament and thus propagating a no-deal Brexit, at a minimum it complicates the process.

Irish government publishes update to Brexit Contingency Action Plan

The Irish government published its Brexit Contingency Action Plan Update, detailing the significant risks associated with a no-deal Brexit on 31 October 2019. Earlier this year Finance Minister Paschal Donohoe flagged that a no-deal scenario could involve a headline deficit in the region of 0.5-1.5% GDP for next year, depending on the magnitude of the economic shock. This would introduce a deterioration in the General Government Balance of up to €6.5 billion. The government has subsequently acknowledged that it does not yet know how a hard border can be avoided in Ireland in the event of no deal.