SNS Reaal Junior Bonds at Record Low After Dutch Nationalization

SNS Reaal NV’s junior bonds were quoted at record lows after the Dutch government seized the securities as part of the lender’s nationalization.

SNS’s 250 million euros ($341 million) of 6.258 percent Tier 1 perpetual notes were 25 euro cents, or 61 percent, lower at 15.5 cents as of 11:10 a.m. in London, according to Bloomberg prices. Its senior bonds were quoted higher after the government said investors in these notes won’t face losses.

The Utrecht, Netherlands-based bank and insurer was nationalized after real estate losses eroded its capital. Dutch Finance Minister Jeroen Dijsselbloem said at a press conference today that, while the government will “expropriate” SNS’s equity and subordinated debt, senior bondholders won’t be affected.

“It’s not clear what value will be given to sub debt, if any,” said Eva Olsson, an analyst at Mitsubishi UFJ Securities in London. “The situation is aggravated by the fact no private investor is likely to participate in the recapitalization.”

SNS’s 301 million euros of 6.625 percent senior, unsecured bonds maturing in November 2016 were quoted 4 euro cents higher at 107.7, Bloomberg prices show. That’s after they fell to 102.71 Jan. 29.

The Dutch lender’s 615 million euros of 0.285 percent senior floating-rate notes due June 2014 were quoted up 1.8 euro cents at 95.62 cents, according to Bloomberg prices.

Bonds Seized

The decree published by the Dutch Ministry of Finance didn’t set out what would happen to junior bond trades executed in the three days running up to the expropriation. Bond trades typically settle three days after they’re agreed.

“I suspect the buyer of a bond yesterday won’t pay because he’s not delivered the securities,” said Bill Blain, a London-based strategist at brokerage Mint Partners Ltd.

Subordinated bonds issued by other banks fell. ING Groep NV’s 1.5 billion euros of 8 percent, junior subordinated perpetual notes redeemable by the lender this April dropped 1.5 cents to a four-month low of 100.04, Bloomberg prices show.

The 591.5 million euros of 4.875 percent junior subordinated notes due May 2016 of Banca Monte dei Paschi di Siena SpA, the Italian lender whose credit rating was cut by Standard & Poor’s late yesterday, dropped 1 euro cent to 86.75. The securities were at 99.38 cents as recently as Jan. 22, Bloomberg prices show.

Risk Higher

The so-called impairment of SNS’s junior bondholders helped push the cost of insuring European lower-ranked bank debt to the highest since Dec. 11.

The Markit iTraxx Financial Index of credit-default swaps tied to the subordinated debt of 25 banks and insurers rose 12 basis points to 262, the biggest jump since October, according to prices compiled by Bloomberg. The senior gauge climbed three basis points to a 1 1/2-month high of 150.

Credit-default swaps 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. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.

SNS received a government bailout in 2008, two years after acquiring ABN Amro Holding NV’s property finance unit. The lender’s core Tier 1 capital ratio, a measure of financial strength, fell to 8.8 percent at the end of the third quarter, below the European Banking Authority’s 9 percent minimum, as real estate losses mounted.

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