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Many big banks in debt-plagued Europe need to slim down and raise capital. As a result, experts say they expect more opportunities for U.S. banks to beef up as overseas conglomerates unload unwanted assets.
December 2 -
Over the last five years, the KBW index of 24 large-cap bank stocks is down 61% while the S&P 500 has been flat. Year to date, BKX has lost 24% while the S&P has gained 0.3%. This disparity between banks and the broader market isn't just about performance.
December 7 -
At its second hearing on the deal, Capital One said its merger with ING's online bank unit was the safest option for the system.
September 27
AMSTERDAM — ING Group NV Monday announced plans to swap EUR5.8 billion ($7.8 billion) in subordinated debt for senior loans and cash, becoming the latest in a string of European banks to exchange their own debt at discounted values and use the gains to strengthen capital.
A number of banks across Europe have recently made the same move as many of these instruments are trading at deep discounts. The premium offered to current market prices and limited trading in the instruments could give investors an incentive to accept the offers by banks.
Book gains resulting from such offers can be used to boost the banks' capital base, particularly as under new upcoming regulations subordinated debt won't count so heavily towards their capital ratios. With these debt securities trading at a discount to their nominal value, ING should make a gain on the loans tendered by paying back less than the amount it originally borrowed.
The prices ING offers range from 58% to 87% of the nominal value of the securities.
"In theory the offer is positive and could result in substantial book gains," said Kepler Capital Markets analyst Benoit Petrarque. However, he warned that similar offers from some other European banks have had limited success.
The U.K.'s Lloyds Banking Group PLC, Dutch bancassurer SNS Reaal NV as well as France's BNP Paribas SA and Societe Generale SA, are among the growing number of banks that have recently announced similar deals.
Banks are trying to strengthen their capital ratios ahead of stricter requirements recently set out by policymakers to make them better able to stand up to potential sovereign debt defaults. European Union leaders in October agreed that the region's banks should raise their ratios to 9% by June. ING's core Tier-1 ratio stood at 9.6% at the end of the third quarter.
ING is launching offers in Europe and the U.S. on seven series of securities. The nominal value is around EUR5.8 billion ($7.8 billion) at current exchange rates and includes two U.S. dollar loans, which can be exchanged at 80% of the nominal value in cash. The other five loans, which include one loan denominated in British pounds, can be exchanged for new, senior euro-denominated loans with 3.25 to 5 year durations.
