Week in Review (31 May)

Eurobank’s Pillar portfolio the first securitisation transaction in Greece to hold a public rating

As noted in previous reports, binding bids for Eurobank’s €2 billion ‘Pillar’ portfolio were submitted on 15 May and DBRS has rated the €1.044 senior tranche BB (low). This makes it the first Greek NPE securitisation transaction with a public rating.

Buoyed by the prospect of a New Democracy led government, Greek bank stocks have performed strongly in 2019 with shares in Piraeus and National Bank of Greece doubling in price. It remains to be seen whether investor confidence will extend to Tier 2 issuance as both Piraeus (€500 million) and National Bank of Greece (€350 million) intend to raise Tier 2 debt in the coming weeks.

Any Carige solution likely to require state support

On 29 May Giuseppe Castagna, CEO of Banco BPM, said that the involvement of other Italian banks in a rescue of Carige will only be possible if the Italian government is willing to contribute. Castagna said that a pure market solution no longer appears possible. The involvement of a bank, in conjunction with the state, would be akin to what happened with Veneto Banca and Banca Popolare di Vicenza in 2017.

That a market solution may not be possible had previously been admitted by Matteo Salvini, who has admitted to press that government help may be needed.

The presumption that a precautionary recapitalisation will be allowed by the regulators is based on the experience of previous Italian governments, who have liberally bent the interpretation of the BRRD. It remains to be seen if the ECB will maintain this allowance in the case of Carige, and whether a refusal will develop into another point of contention between Italy and European regulators

Malmstrom warns of escalation in EU-US trade dispute

As we noted in April, a longstanding WTO dispute between the US and EU, over airbus subsidies, has re-emerged as a point of contention in the strained trade relationship between the two powers.

Despite an arbitration process taking place throughout May, EU Trade Commissioner Celia Malmstrom has now admitted that US tariffs amounting to $21 billion are set to be imposed. These will come likely come into force in July, following approval by a WTO arbitrator. EU tariffs would then follow, following a similar approval process by the WTO.

While the Airbus dispute is a long running one, its reignition – and the lack of US willingness to compromise – should be seen in the context of wider EU-US relations under Trump. Airbus linked tariffs, on food products, could now be used as a bargaining chip by the US in wider trade talks with the EU.