Bank : BMPS, Banco Popular and Veneto Banca/BP Vicenza - same symptoms, three treatments

European authorities may go into their long summer recess. In June they wrapped up the long-running issues involving Banco Popular, BMPS and Veneto Banca-BP Vicenza. Three cases, with their own problems and three different solutions to address their failures: a resolution in the sense of the BRRD for Popular without state aid, a liquidation according to Italian law, with state aid, for the two Venetian banks and a precautionary recapitalisation of BMPS by the Italian state. The only common feature was the sharing of the losses of Tier 1 and Tier 2 subordinated debtholders and the sheltering of senior debt. - > - Thus, three solutions, all authorised and referring to European text rules, and all criticised, attacked by officials, shareholders, bondholders. More than the procedures, it is the policy decisions that are debatable because they are taken by the three European authorities on qualitative criteria: ECB's solvency statement (MPS solvable, Banco Popular and Venetian banks insolvent), entry into and means of resolution for the SRB (Venetian banks deemed non-systemic), approval of state aid by the European Commission. - The introduction of qualitative criteria, which can be read by all and therefore understandable, should improve the transparency of these decisions and dispel misgivings about the significance of the policies and criticisms levelled by shareholders and bondholders. - - We shall not dwell on these debates, now in the hands of law firms. Regarding the bond market, we can only note and state that: - 1/ the Banco Popular AT1s were not used to recapitalise the bank, be it the high trigger or low trigger instruments, and this confirms the idea that the market already had, namely the PONV is well above 7%; - 2/ Tier 2 bonds have lost as much as Tier 1 (Popular), reminding investors that Tier 2 debt is bailinable as soon as state aid or resolution is required; - 3/ senior debt was protected by the regulator – the fact that retail investors owned them has clearly been a factor in this decision. - - Two tables in this report sum up the key factors in the resolution of these three cases.