Bradford and Bingley- UK Gov default
Hildy Johnson | 27.05.2009 17:48
Publishing this as evidence that MSM lying about green shoots budding in the economy. This story about B & B debt is being suppressed to avoid panicking depositors
According to Bloomberg the UK government has suspended interest payments on Bradford and Bingleys debt.
Although the orthodox view that the government is using a mechanism to reduce the risk to taxpayers there are concerns that this is either a sign of UK plcs sovereign debt problems or that a so called "credit default swap event" will take place.
Investors have been driven to hysteria by this news so it must be pretty serious.
http://bloomberg.com/apps/news?pid=20601087&sid=aVlWdNfgMzBc&refer=home
May 27 (Bloomberg) -- Bradford & Bingley Plc, the U.K. mortgage lender taken over by the government, said it won’t make interest payments on 325 million pounds ($520 million) of subordinated bonds.
The bank will skip payments due in either June or July on 50 million pounds of 11.625 percent perpetual securities, 125 million pounds of 6.625 percent bonds maturing 2023 and 150 million pounds of floating-rate notes due 2054, according to three separate statements sent after the market closed yesterday.
Subordinated bonds have tumbled on concern governments will force financial institutions that received bailouts to defer coupon payments to protect taxpayers. The U.K. changed rules in February to allow the Bingley, England-based bank to defer interest on 850 million pounds of so-called lower Tier 2 debt.
“This makes it highly probable that interest will be suspended on the bank’s other outstanding subordinated bonds,” said Eleonore Lamberty, a credit analyst at ING Groep NV in Amsterdam.
Bradford & Bingley will decide on future interest payments as they fall due, according to spokeswoman Katherine Conway. The bonds on which the bank will miss interest are so-called upper- and lower-Tier 2 securities, she said. Banks issue Tier 1 and Tier 2 debt to raise capital demanded by regulators to protect depositors. Interest on lower Tier 2 bonds typically can’t be deferred.
Extra Yield
The extra yield investors demand to hold lower Tier 2 bonds in pounds rather than similar-maturity government debt widened to a record 7.25 percentage points on March 30, and was at 6.35 percentage points yesterday, Merrill Lynch & Co.’s Sterling Lower-Tier 2 index shows.
The Markit iTraxx Financial Index of credit-default swaps linked to subordinated financial-company debt rose 6 basis points to 220, according to JPMorgan Chase & Co. prices.
“This raises more questions about what might happen to hybrid and subordinated debt at other banks the government owns or might end up owning,” said Simon Adamson, a banking analyst at independent research firm CreditSights Inc. in London. “It focuses attention on the risks of these kinds of securities.”
The payment deferral could trigger Bradford & Bingley’s default swaps, although it is unclear if there has been a so- called credit event, according to Hank Calenti, an analyst at Royal Bank of Canada in London.
“If you don’t make a payment on a debt instrument which is non-deferrable, that is typically classified as a default,” said Calenti. “This is a special case that the U.K. government has gotten involved in.”
Credit-default swaps are used to speculate on a company’s ability to repay debt and pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Although the orthodox view that the government is using a mechanism to reduce the risk to taxpayers there are concerns that this is either a sign of UK plcs sovereign debt problems or that a so called "credit default swap event" will take place.
Investors have been driven to hysteria by this news so it must be pretty serious.
http://bloomberg.com/apps/news?pid=20601087&sid=aVlWdNfgMzBc&refer=home May 27 (Bloomberg) -- Bradford & Bingley Plc, the U.K. mortgage lender taken over by the government, said it won’t make interest payments on 325 million pounds ($520 million) of subordinated bonds.
The bank will skip payments due in either June or July on 50 million pounds of 11.625 percent perpetual securities, 125 million pounds of 6.625 percent bonds maturing 2023 and 150 million pounds of floating-rate notes due 2054, according to three separate statements sent after the market closed yesterday.
Subordinated bonds have tumbled on concern governments will force financial institutions that received bailouts to defer coupon payments to protect taxpayers. The U.K. changed rules in February to allow the Bingley, England-based bank to defer interest on 850 million pounds of so-called lower Tier 2 debt.
“This makes it highly probable that interest will be suspended on the bank’s other outstanding subordinated bonds,” said Eleonore Lamberty, a credit analyst at ING Groep NV in Amsterdam.
Bradford & Bingley will decide on future interest payments as they fall due, according to spokeswoman Katherine Conway. The bonds on which the bank will miss interest are so-called upper- and lower-Tier 2 securities, she said. Banks issue Tier 1 and Tier 2 debt to raise capital demanded by regulators to protect depositors. Interest on lower Tier 2 bonds typically can’t be deferred.
Extra Yield
The extra yield investors demand to hold lower Tier 2 bonds in pounds rather than similar-maturity government debt widened to a record 7.25 percentage points on March 30, and was at 6.35 percentage points yesterday, Merrill Lynch & Co.’s Sterling Lower-Tier 2 index shows.
The Markit iTraxx Financial Index of credit-default swaps linked to subordinated financial-company debt rose 6 basis points to 220, according to JPMorgan Chase & Co. prices.
“This raises more questions about what might happen to hybrid and subordinated debt at other banks the government owns or might end up owning,” said Simon Adamson, a banking analyst at independent research firm CreditSights Inc. in London. “It focuses attention on the risks of these kinds of securities.”
The payment deferral could trigger Bradford & Bingley’s default swaps, although it is unclear if there has been a so- called credit event, according to Hank Calenti, an analyst at Royal Bank of Canada in London.
“If you don’t make a payment on a debt instrument which is non-deferrable, that is typically classified as a default,” said Calenti. “This is a special case that the U.K. government has gotten involved in.”
Credit-default swaps are used to speculate on a company’s ability to repay debt and pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Hildy Johnson