Unit 6 Section 2 The Balance Sheet

Text No 4

The Financial Times

January 2012

Europe’s banks rush to sell bonds

By Tracy Alloway

Europe’s banks have started the new year by rushing to sell their bonds to investors, in an early attempt to replace the hefty amount of financial debtdue to mature this year.

The region’s lenders face an estimated?700bn wall of debt that needs to be refinanced this year, with most of that falling ¹ in the first-quarter of 2012. Last year banks managed to sell?426bn worth of debt in the first half, according to Dealogic data, but issuance slowed to?126bn in the second half because of ongoing eurozone turmoil. If lenders can’t refinance the maturing debt, they are likely to have ² to shrink their balance sheets – increasing ³ the probability of a credit crunch and recession.

Banks have so far in 2012 sold at least?10bn worth of so-called unsecured bonds ⁴, which have traditionally been the bread and butter of banks’ debt funding ⁵. Most banks were unable to sell the debt to nervous investors in the second half of last year, with only about?80bn issued.

“The reports of unsecured’s death are greatly exaggerated,” said one specialist in bank stock sales.

Still, other market participants disagreed. “It’s human nature there’s a bit of optimism around in the new year, but nothing has really changed,” said Matthew Pass, who specialises in bank debt at RBC Capital Markets.

So stark was 2011’s financial funding drought thatthe European Central Bank last month moved to provide financial institutions with?449bn of unprecedented three-year loans, known ⁶ as longer-term refinancing operations or LTROs.

Other banks have this week been selling covered bonds ⁷, a type of debt considered ultra-safe by investors and which was issued in record volume last year. Crédit Agricole sold?1.5bn of 10-year covered bonds, while Société Générale is in the market issuing ⁸?1.25bn of 10-year covered debt.

“If you want to demonstrate to the markets that you’re a viable business you have to do deals, hence why these high-quality names are issuing at levels that are higher than simply taking three-year ECB liquidity,” added Mr Pass.

Notes:

1) См. Учебник “Экономический английский”, стр. 415 “Абсолютная причастная конструкция”

2) См. Учебник “Экономический английский”, стр. 408 “Инфинитивные конструкции”

3), 6), 8) См. Учебник “Экономический английский”, стр. 413 “Причастие”

4), 7) secured bonds=covered bonds=обеспеченные облигации=a type of bond that is secured by the issuer's pledge of a specific asset, which is a form of collateral on the loan. In the event of a default, the bond issuer passes title of the asset or the money that has been set aside onto the bondholders. Secured bonds can also be secured with a revenue stream that comes from the project that the bond issue was used to finance. Because of the pledge of an asset, secured bonds are seen as less risky than unsecured bonds and generally provide lower returns than unsecured bonds. Mortgage bonds are a type of secured bonds.

5) debt funding=debt financing=долговое (заемное) финансирование=финансирование за счет привлечения заемного капитала (эмиссия облигаций или получение кредита в банке и т.д.), в отличие от привлечения средств путем выпуска акций либо финансирования за счет нераспределенной прибыли

 

 

Unit 6 Section 2 The Balance Sheet

Text No 5

The Wall Street Journal

January 2012

Successful End to UniCredit ¹ Rights Issue²

By Christopher Emsden

ROME—UniCredit SpA sold 99.8% of the shares offered as part of a huge recapitalization program ³, putting ⁴ a successful end to a deal whose rocky start roiled financial markets early this month.

Milan-based UniCredit said it raised?7.482 billion ($9.81 billion) in new equity. A remaining?17.9 million in new shareswill be auctioned at a later date.

The rights issue from Italy's largest bank by total assets was considered a litmus test ⁵ for the European banking sector, which is under pressure from regulatorsto raise large amounts of capitalto cushion it against the euro-zone debt crisis.

The successful share sale issue ⁶ means Unicredit will meet the regulatory requirementsset ⁷ by the European Banking Authority ⁸, which has asked banks to be better cushioned against possible losses on their sovereign-bond portfolios ⁹.

Unicredit announced Jan. 4 that it aimed to raise?7.5 billion in fresh equity and priced the new shares at?1.94 each, a 43% discount on the bank's price. The bank's shares fell by almost half in the next five days, triggering ¹⁰ alarm that European banks wouldn't be able to raise capital at a time when the region appears to be entering ¹¹ recession.

But shares have since rallied by almost 70% from their Jan. 9 low, closing ¹² Friday at?3.65 a share.

UniCredit didn't disclose details about the purchasers of the shares, but a person at one of the main banks handling the sale said demand was among both retail and institutional investors.

The strained balance sheets of many Italian banking foundations that historically have been among UniCredit's biggest shareholders meant that they likely had to dilute their stake in the bank, which has sizable franchises in Germany, Austria, Poland and Turkey in addition to its Italian business.

That raised concern in some circles that foreign investors, who have long also been a force at the bank, may have boosted ¹³ their power ahead of a spring shareholder assembly that will vote in a new board of directors.

To help ensure the rights issue was fully subscribed, UniCredit recruited more than two dozen banks to underwrite ¹⁴ the capital increase. Banks will only have to buy unsold shares if they aren't sold at the auction. The offering was led by Bank of America Corp. and Mediobanca SpA.

Notes:

1) UniCredit= UniCredit SpA is an Italy-based, pan-European banking organization, with aprox 40 million customers and operations in 22 countries. The company has its registered office in Rome and general management in Milan.UniCredit's core markets are Italy, Austria and Southern Germany. UniCredit also has operations in Central and Eastern Europe. The UniCredit Group has investment banking divisions in London, Milan, Munich, Vienna, Budapest and Warsaw.

2) rights issue=cash call

3) recapitalization=изменение структуры капитала=restructuring a company's debt and equity mixture, most often with the aim of making a company's capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company's capital structure and replacing them with bonds.. A good example is when a company issues stock in order to buy back debt securities, thus increasing its proportion of equity capital as compared to its debt capital.

4), 7), 10), 12) См. Учебник “Экономический английский”, стр. 413 “Причастие”

5) litmus test=лакмусовая бумажка

6) См. Учебник “Экономический английский”, стр. 390 “Атрибутивные конструкции”

8) European Banking Authority=Европейское Управление по Банковскому Надзору

9) sovereign bonds=government bonds

11) См. Учебник “Экономический английский”, стр. 408 “Инфинитивные конструкции”

13) См. Учебник “Экономический английский”, стр. 401 “Модальные глаголы (“may”)”

14) underwriter=an investment bank that acts as an intermediary between the issuing company and the investors who purchase the company's debt instruments and/or stock at the Initial Public Offering (IPO). The underwriter buys the newly issued securities from the company and sells them to investors on the secondary market through a stock exchange.=гарант (поручитель) размещения ценных бумаг

underwriting=the procedure by which an underwriter brings a new security issue to the investing public in an offering. In such a case, the underwriter will guarantee a certain price for a certain number of securities to the party that is issuing the security (in exchange for a fee). Thus, the issuer is secure that they will raise a certain minimum from the issue, while the underwriter bears the risk of the issue.=гарантированное размещение ценных бумаг