Tag Archives: Funding

On June 29, BIS published its 84th Annual Report. Following we show a summary concerning the evolution of worldwide Bank’s capital ratios:

  • CET1 average increased from 8,5% to 9,5% over the last year, based on fully phased in B3 rules
  • Capital shortfall of banks lagging capital decreased significantly to 82,5 billion EURO
  • Bost of capital ratios is driven by increase in bank capital, mainly by retained Earnings
  • Dividend to earnings ratio decreased to 33%

2014-06_Capital gra6-1


Given their contribution to higher bank capital so far, stable profits will be key to the sector’s resilience in the near future. On average, profits rebounded further from the crisis lows, but recovery remained uneven across countries.

Dear All,

Thank you for your interest in bankenanalyse throughout 2013. This year was marked by fundamental changes in bank regulation. In 2014, we look forward to more transparency on the impact on the regulated and shadow banking system. Future research and market adjustments will show if the goal to increase financial stability, as set by the G20 Finance Ministers in 2008, can be reached. The European Banking Supervisory Board will play a crucial role in this.

The next Bankenanalyse posts will appear starting February 2014. We wish you the best for a festive season and a prosperous new year.

Your Bankenanalyse


As this year comes to a close, we want to use the opportunity for an open letter to Mrs. Danièle Nouy, appointed chairperson of the Supervisory Board at the ECB, concerning the Single Rule Book with respect to goals and challenges of 2014.


Dear Mrs. Nouy,

the responsibility you assumed is probably the most challenging in banking business today. To qualify what is meant by “challenging” , we refer to your role as Chairperson of the Supervisory Board, which does not only require diplomacy, handling various interests which European Economies and Finance Ministers have, but also requires a strong leadership to assure consistent supervisory work which focuses on a harmonised European playing field. As defined by the G20, bank comparability and transparency is crucial to restore confidence in the regulated banking system. This is also valid for the shadow banking activities. Much work has been done so far: the fundament of the European Banking Union, the Single Rule Book, will come into force starting January 1st. To achieve the goals set, political and operational challenges must be addressed.

The potential renationalisation of bank rules presents a huge challenge on the political side. A prominent example of this is the reclassification of Deferred Tax Assets. A basic guideline of the Single Rule Book stipulates that regulatory capital has to be fully paid in. Spanish banks, by contrast, use a reclassification to improve capital ratios. This example should not be construed as fingerpointing. It is simply an example for different economic situations requesting national solutions which may be in contrast to the Single Rule Book.

On the operational level, it will be crucial to understand and react to bank’s market behavior. Let us take the connection between state finance and banks as an example. The Italian sovereign exposures of domestic banks amount to about 9 percent of the assets, mostly in trading and available-for-sales accounts. As the Monetary and Capital Markets Department of the IMF states, „this exposure is relatively large compared to other advanced economies, and Italian sovereign spreads have been experienced periods of above- average volatility. Mark-to-market valuation losses could affect bank solvency, while lower market prices for sovereign bonds would reduce their collateral value for secured funding, including from the ECB. Besides direct effects, the experience of the European debt crisis suggests that acute sovereign distress can have a broader impact on the economy, further aggravating pressures on the financial sector.“ To reduce the exposure towards mark-to-market losses by rising rates, it is plausible to see more and more banks shifting sovereign bond from their available-for-sale portfolios to held-to-maturity, which will mitigate the impact that movements in the bond markets have on their tangible book values and common equity. These adjustments have an impact on key figures. A proper understanding of how figures are interconnected is essential. To remain with the Italian bank example, a high sovereign exposure goes together with a relatively high rate of ECB eligible collateral. This has a positive impact on liquidity ratios. The asset encumbrance ratio for Italian Banks shows two main patterns: first, it significantly increased from 2011 to 2013. Second, government bonds remain the main source of unencumbered assets. A decrease in mark-to-market value may have a significant impact on the asset encumbrance ratio and the possibility to refund in stressed sovereign markets.



12-2013_ECB eligible collateral

Supervisory Reporting, which is addressed in the Single Rule Book, does reference these connections. It remains a challenge to draw the right conclusions, as each market and jurisdiction, but also each bank’s business model has its own logic. This already becomes evident in the course of the Comprehensive Assessment.

Currently, the ECB collects information in preparation for the Comprehensive Assessment. Key questions, which are basic for restoring confidence in the European bank balance sheets, are still open to be answered. What level of provisions will the ECB require against nonperforming loans? How will it stress test banks’ exposure to sovereign debt? How will it stress test the safety and soundness of bank funding structures, including continued reliance on ECB facilities and the recent sharp rise in ultra short-term market funding? In the words of Simon Nixon (WallStreet Journal): „What is becoming clear is that the Comprehensive Assessment may not be as comprehensive as some had hoped. The ECB will be bound by existing national rules relating to provisions and quality of capital. Indeed, some officials fear the ECB is being burdened with excessively high ambitions: It is unrealistic to expect the Comprehensive Assessment to lead to a miraculous transformation in the euro zone’s financial landscape. Yet without a transformation in the financial landscape, the ECB is likely to come under further pressure to adopt radical measures to ease borrowing costs in the periphery.“

There are many questions to be answered on the course to developing a European financial system.

Bankenanalyse sees two key ingredients which are required to handle these challenges. These are structures allowing swift and decisive decision making as well as staff which is taking responsibility to address operational hurdles and level inconsistencies to reach the defined goals.

With best wishes for a peaceful festive season and a successful 2014,


By definition, focused analysis results always depend on the factors taken into account. In this article, we will focus on main drivers explaining funding at a bank-specific level. Current trends suggest that Banks prepare for a switch from collateralised funding, such as Covered Bonds, to more unsecured funding.

To start, let us explore the following question: What is the ratio behind changing funding patterns?

From 2008 on most investors were looking for safe bank funding, if at all. Bank funding was mainly buy-side driven. Let us consider the following figures: European Covered Bond issues reached their peak in 2011, with a total of 370 billion US-Dollars. In addition to the market expectations, we understand regulatory uncertainty as a further driver which pushed secured funding. Specifically, Covered Bonds were expected to play a crucial role in fulfilling the requirements defined by the Liquidity Coverage Ratio. With respect to the final rules, Covered Bonds are still important. Their dominant impact, however, is balanced by alternative factors allowing to calculate an adequate Liquidity Coverage Ratio.

Between 2011 and 2013 the factors defining bank funding patterns changed: In 2013 the issuance of Covered Bonds fell back to a 2002 level. This break in the above-mentioned trend towards the 2011 peak occured even though the investors have been showing a stable demand for secured funding. What are the new drivers shifting the funding patterns to (relatively) more unsecured funding? Karlo Fuchs, Senior Director of Covered Bonds at S&P points out the following: First, banks focus more on deleveraging their balance sheets leading to less covered bonds. Second, banks are heavily working on meeting new targets set by the regulators, such as the Leverage Ratio and the Asset Encumbrance Ratio. In addition, regulatory grandfathering rules have the potential to wipe out parts of existing Additional Tier 1, in case a step up is combined with a call date and if the instrument does not fully comply with the criteria of Article 52 CRR.

We understand that these factors further push the issuance of unsecured debt in 2014/2015. The question if those instruments will be structured as Contingent Convertible Bonds will depend on the bank-specific funding mix and the tax treatment of those bonds, among other factors. Gerald Podobnik, Head of Capital Solutions at Deutsche Bank, weighs in on this topic in an FT article, stating that an “avalanche” of Additional Tier 1 contingent convertible bonds from European banks is expected in 2014 amid efforts to build capital buffers and boost leverage ratios. According to Dealogic data EU banks have issued a record 9.6 billion US-Dollars in CoCos to date in 2013; Podobnik expects up to 30 billion US-Dollars for 2014. The decisive factor for the final design of unsecured funding instruments will depend on bank-specific key indicators such as capital, leverage and encumbrance ratio.

Gegenüber der Situation im Herbst 2008 hat sich die Liquiditätssituation der europäischen Banken wieder stabilisiert. Aktuelle Entwicklungen deuten aber darauf hin, dass die klassische Refinanzierungsstruktur europäischer Banken aufgebrochen ist. Demnach wird die marktbasierte Refinanzierung (wholesale funding) – insbesondere das Volumen unbesicherter vorrangiger Bankanleihen – künftig zurückgehen.

In den Jahren vor der Finanzkrise war der Anteil der längerfristigen marktbasierten Refinanzierung am Refinanzierungsmix europäischer Banken relativ stabil, ebenso die Verteilung unbesicherter Senior Debt und besicherter Covered Bonds, die etwa bei 60:40 lag. Dabei weisen einzelne Institute in Abhängigkeit des Geschäftsmodells große Unterschiede auf.

Seit der Finanzkrise hat sich das Emissionsvolumen auf den beiden Märkten verändert: Während der Markt für Covered Bonds auch nach 2008 relativ stabil blieb, ist das Emissionsvolumen unbesicherter Bankanleihen eingebrochen. Gegenüber 660 Mrd. EUR im Jahr 2007 wurden im Vorjahr nur noch 330 Mrd. EUR emittiert.

Die Ursachen für diese Entwicklung sind vielschichtig. Bonitätsschwache Banken spüren besonders deutlich die gestiegene Risikoaversion der Investoren. Hingegen liegt die Zurückhaltung bonitätsstarker Banken wohl eher an den gestiegenen Spreads aufgrund der Benachteiligung unbesicherter Anleihegläubiger; bei einem hohen Anteil an Covered Bonds besteht die Gefahr, dass im Insolvenzfall nicht genügend (frei) verwertbare Assets zur Verfügung stehen. So ist es im Zuge einer Krise aufgrund der Variabilität der zugrundeliegenden Deckungsstöcke durchaus möglich, dass 100 Einheiten Covered Bond-Finanzierung auf der Passivseite der Bank 200 Einheiten der Aktiva belegen. Bezogen auf die Assetklasse ist außerdem festzustellen, dass Senior Unsecured regulatorisch benachteiligt wird; beispielsweise ist eine Anerkennung als hochliquides Aktivum der Liquidity Coverage Ratio nicht möglich; im Rahmen der Restrukturierung von Banken ist zudem der Bail-in von unbesicherten Anleihen vorgesehen, womit Verluste an die Gläubiger weitergereicht werden. Auch plant die EZB von Banken begebene Anleihen ab März 2015 nicht mehr als Sicherheit für Zentralbankgeld anzunehmen, wenn diese ungedeckt und mit einer Staatsgarantie unterlegt sind. Dies gilt auch für Covered Bonds, sofern diese mit staatlich garantierten Bankanleihen unterlegt sind.

Von dem damit einhergehenden Rückgang des Emissionsvolumens unbesicherter Bankanleihen sind insbesondere bonitätsschwache Banken betroffen, da diesen Banken auch eine besicherte Refinanzierung nur eingeschränkt möglich ist. Aktuell wird dieses Defizit noch durch Liquiditätsmaßnahmen der EZB verdeckt. Aktuelle Daten weisen aber bereits darauf hin, dass sich dies mit dem Auslaufen der Maßnahmen für einzelne Banken ändern wird.

Ein Beispiel ist die geographische Verteilung der Rückzahlungen der 3-jährigen Refinanzierungsgeschäfte (LTRO), die von der EZB Ende 2011 und Anfang 2012 begeben wurden: Zu Beginn des Jahres 2013 wurden 200 Mrd. EUR an LTRO’s zurückgeführt. Allerdings sind die Ausleihungen über den EZB-Wochentender parallel dazu um 100 Mrd. EUR gestiegen; sofern durch Staatsanleihen und Pfandbriefe aus Kerneuropa abgesichert lockt der niedrigere Zinssatz von 0,4%. Der Nettoeffekt ist entsprechend gering. Zudem geht Barclays davon aus, dass italienische und spanische Banken nur etwa 10% bzw. 16% zurückgegeben haben. Wenn dem so ist, stammt ein Großteil der Tilgung und Umschichtung demnach von bonitätsstarken Banken der Kernstaaten Europas.

Auch das Ergebnis einer Studie des Beratungsunternehmens McKinsey zur Finanzierungslücke europäischer Banken deutet auf die Gefahr künftiger Liquiditätsengpässe hin. Demnach fehlen französischen Banken bis zu 433 Mrd. EUR an Einlagen, um die vergebenen Kredite zu refinanzieren. In Relation zur Bilanzsumme der französischen Banken relativiert sich dieser Betrag; der Anteil liegt unter 10%. Betroffen sind aber insbesondere griechische Banken. Diesen fehlen 21%, slowenischen Banken fehlen 19% und bei irischen Banken beläuft sich die Finanzierungslücke auf 11% der Bilanzsumme. Diese Liquiditätslücke wurde in der Vergangenheit vor allem auch durch die Emission unbesicherter Bankanleihen geschlossen. Wie oben skizziert, deutet die aktuelle Entwicklung von Markt und Regulatorik darauf hin, dass dies in Zukunft nur noch eingeschränkt bzw. zu nicht tragbaren hohen Kosten möglich ist.

In Konsequenz dieser Entwicklungen werden insbesondere bonitätsschwache Banken ihre Refinanzierungsstruktur grundlegend überprüfen müssen. Höhere Kosten für unbesicherte Anleihen wirken sich direkt auf das Geschäftsmodell aus. Sofern eine Anpassung schwierig ist und die Finanzierungslücke nicht geschlossen werden kann, müssen diese Banken gezielt Aktiva abbauen, um – bei veränderter Refinanzierungsstruktur –  die bisherige Kapitalstruktur aufrecht zu erhalten. Aufgrund des Mangels an erstklassigen Sicherheiten betrifft dies auch bonitätsstarke Banken – allerdings in geringerem Ausmaß.

Die Refinanzierung mittels Verbriefung bietet aktuell (noch) keine Alternative zu Covered Bonds und Senior Unsecured. Zwar zielt beispielsweise das Prime-Collateral-Securities-Programm der europäischen Finanzindustrie darauf ab, das Vertrauen der Investoren zurückzugewinnen. Aktuell ist dies aber noch nicht gelungen.