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ING, Lloyds May Defer Coupons on Hybrid Debt, CreditSights Says
Aug. 14 (Bloomberg) -- ING Groep NV and Lloyds Banking Group Plc are among lenders that may be forced to defer paying coupons on some bonds as the European Commission toughens its stance on state aid, according to analysts at CreditSights Inc.
The Commission has already told Bayerische Landesbank, Germany’s second-largest state-owned lender, and Anglo Irish Bank Corp., to defer payment on so-called hybrid securities as a condition of receiving government cash. London-based Lloyds and ING in Amsterdam are among 17 banks that have submitted or are due to submit restructuring plans to the Commission, according to CreditSights.
Hybrid notes are subordinated bonds that mix elements of debt and equity and act as capital to buffer senior lenders and depositors against losses. The EC said July 23 that unless banks are contractually bound to pay coupons, state aid should not be used to pay either equity or subordinated debt investors.
“The European Commission is taking a tougher line on banks that have received state aid,” London-based analysts Simon Adamson and John Raymond wrote in a report today. The analysts spoke to an EC representative and he “summed up the message to banks as ‘Tell us a way you can not pay,’” they wrote.
A so-called viability plan that sets out a lender’s prospects for survival without more public money is required from all banks receiving state aid, according to CreditSights. A full restructuring plan may also be required, the analysts said.
Payment Barred
The criteria for determining which banks may be subject to enforced deferral are “flexible,” CreditSights said. They include the amount of aid received, capital ratios, credit ratings, stock prices and spreads on credit-default swaps, according to the analysts.
“The European Commission deals with all cases on an individual basis,” and “it is difficult to compare Lloyds to other cases,” said Leigh Calder, a spokesman for Lloyds in London. “The group has a strong plan to exit state aid,” Calder said.
“The discussion with the European Union will begin shortly and we can’t discuss possible outcomes beforehand,” ING spokesman Raymond Vermeulen in Amsterdam said. “We can only say that if we weren’t going to pay we’d notify the market, and we haven’t given that notification.”
KBC Group NV, the recipient of 7 billion euros ($10 billion) in Belgian bank-rescue funds, was barred from paying coupons on one of its hybrids and said it’s negotiating with the Commission on whether it can pay interest on 280 million euros of notes sold through its KBC Bank Funding Trust II unit.
“The Commission acknowledges that it does not have the resources to conduct in-depth legal assessments of each bond, but the implication from KBC is that it is having a good try,” the analysts wrote.
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