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A_M Firmwide Overview - Corporate Restructuring Summit

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									BANK SYSTEM STABILISATIONS 
        IN EUROPE
              NILS MELNGAILIS
     CO-HEAD FINANCIAL SERVICES EUROPE
EUROPEAN BANKS


Critical steps to safeguard future viability:


1. Balance Sheets       Honestly evaluate balance sheets

2. Capital Position     Improve capital position

3. Core Business        Identify core and non-core businesses

4. Cost Base            Right-size cost base

5. ERM                  Place enterprise risk management at the heart of future strategy

6. Relations            Proactively manage political and regulatory relations




                                                                                           2
WHERE ARE THE VARIOUS COUNTRIES ON THIS JOURNEY?


               Step 1     Step 2       Step 3        Step 4           Step 5        Step 6    
  Critical 
  steps to    Evaluate    Improve      Identify     Right-size       Implement      Manage 
 safeguard    balance      capital    core and      cost base           ERM       political & 
  viability    sheet      position    non-core                        strategy    regulatory 
                                                                                   relations

UK


Ireland

Latvia

Greece

Spain

Cyprus


                                                                                                 3
IRELAND


 Restructuring Roadmap                                Key Issues Still Remain


Government  Blanket Government guarantee of          Residential    Residential mortgage arrears still
Guarantee   liabilities                              Mortgages      challenging



NAMA &        Establish NAMA to acquire toxic        Remedy         New mortgage forbearance measures
              loans (€74bn) and wind-down            Measures       and personal insolvency to try remedy
IBRC          nationalised IBRC (Anglo / INBS)                      the situation



Pillar        Creation of the Pillar Bank strategy
                                                     Deposits       Deposits stabilising with focus on
              (AIB/EBS & BOI) & standalone
Strategy                                                            weaning off ECB funding
              PTSB



ECB & ELA     Reliance on ECB & ELA (now             SME Credit     SME credit still at key component for
              c.€120bn) to ‘plug’ deposit flights                   employment growth


                                                     Reorgani-      Bank business model redesign and
Regulation    Robust and intensive regulation        sations        cost reduction to continue




                                                                                                            4
GREECE


 Recent Developments                                  Piraeus Bank & ATE Bank


Sovereign    Sovereign financial crisis has led to   Takeover of    Piraeus, 4th largest Greek lender, to
Crisis       a substantial pressure on the           ATE Bank       acquire the healthy assets of the state-
             banking system                                         controlled Agricultural Bank of Greece


Deposit      Deposits reduced from €280bn to                        Piraeus will operate the restructured
                                                     Strategy
Flight       €235bn in the last three years                         bank



First                                                HFSF           Gap between assets transferred to
             First bailout of €110bn from the EU
                                                                    Piraeus and ATE bank’s liabilities
Bailout      and IMF in May 2011                     Funding        covered by HFSF


                                                     Further 
Second       Second bailout of €130bn in March                      HFSF to also provide capital injection
                                                     Capital 
Bailout      2012                                                   for Piraeus following the takeover
                                                     Injection




                                                                                                               5
SPAIN


 Recent Developments                                   FROB / AMC Creation


Large RE        Financial institutions ‘exposure to                    Creation of FROB to reorganize the
                                                      FROB 
Exposure        real estate is c.35% of GDP                            Spanish Banking Industry


Liquidity       Extremely scarce, heavy reliance on   Initial Capital  Initial capital of FROB amounts to
Scarcity        Eurozone funding                      of €9bn          €9bn


                €30bn fund to purchase high quality
                covered bonds and ABS                 Royal Decree  Spain approved the broad regulatory
State Aid
                €63bn securities issued by banks      Law           framework for its proposed AMC
                with state-guarantee


                                                      First 4 Banks  BFA, Catalunya, NCG and Banco de
AMC                                                   to Transfer 
                Decision to create a nationwide AMC                  Valencia to transfer their impaired
Creation                                              Assets         assets to AMC


                                                      Eurozone 
International  Pressure on Spain to seek bail-out     Funding of       AMC to acquire assets at a very heavy
Pressure       through new ECB approved bond-                          discount, with €100bn of European Aid
                buying program                        €100bn


                                                                                                               6
CYPRUS


 Recent Developments                                     Bank Rescues


Huge            Disproportionally large, carrying the
                                                        Heavy 
                                                                       Two largest financial institutions, Bank
Exposure to     risks of €23bn in private-sector        Losses in      of Cyprus and Popular Bank, recorded
Greece          Greek debt                              2011           heavy losses in 2011



Oversized                                               €3bn Losses    53.5% haircut on the nominal value of
Banking         Banking system 8.9x size of GDP         from GGB 
                compared to 3.5x EU average                            the GGB’s resulted in losses of almost
System                                                  Haircuts       €3bn of the two banks, c.20% of GDP



High Level of The financial system is highly            Bank of        Bank of Cyprus announced that it
              concentrated with commercial                             would require capital support of €500
Concentration banks owning 66% of total loans           Cyprus         million


Dominance of  The three largest banks account for       Cyprus 
three Largest  c. 98% of total domestic                 Popular        Cyprus Popular Bank, the most heavily
Banks          commercial bank assets                                  exposed to Greece, needs €1.8 billion
                                                        Bank




                                                                                                                  7
DE-COUPLING THE BANKING SYSTEM FROM THE SOVEREIGN SYSTEM

De-coupling the banking system from the Sovereign system in order to enhance
control mechanisms and improve conditions.



ECB Bond Buying Program          ØConditions


Pan-European Bank Supervisor  ØParticipants (top banks or all banks)
(Banking Union)               ØRole of local regulators


                                 ØConditions
ESM equity stakes in banks       ØValuation of stakes
                                 ØRetrospective actions




                                                                               8
EUROPEAN OFFICES

A&M Europe HQ

Alvarez & Marsal Europe LLP          Nils Melngailis                     Alvarez & Marsal - Ireland
1st Floor, One Finsbury Circus       Co-Head Financial Services Europe   20 Harcourt Street
London EC2M 7EB                      London EC2M 7EB                     Dublin 2
United Kingdom                       United Kingdom                      Ireland
Tel: +44 207 715 5200                Direct: +44 207 715 5202            Direct: +353 1 400 7522
Fax: +44 207 715 5201                Mobile +44 792 106 4860
www.alvarezandmarsal.eu              nmelngailis@alvarezandmarsal.com


Other European Locations

Alvarez & Marsal Deutschland GmbH    Alvarez & Marsal France SCS         Alvarez & Marsal Poland Sp. z o.o
Bürkleinstrasse 10                   24, rue Royale                      PI. Trzech Krzyży 3
D-80538 München                      75008 Paris                         00-535 Warszawa
Germany                              France                              Tel: +48 22 397 82 00
Tel: +49 89 71040 600                Tel: +33 1 44 50 01 11              Fax: +48 22 584 71 60
Fax: +49 89 71040 601                Fax: +33 1 44 50 01 35

Alvarez & Marsal Italia S.r.l.       Alvarez & Marsal Europe Limited     Alvarez & Marsal Greece
Piazzale Luigi Cadorna, 4            Strawinskylaan 3127                 44 Zalokosta and Kifissias Avenue
20123 Milano                         1077 ZX Amsterdam                   152 33 Chalandri
Italy                                The Netherlands                     Athens, Greece
Tel: +39 02 8596 411                 Tel: +31 20 30 17 441               Tel: +30 211 1069 417
Fax: +39 02 8596 4150                Fax: +31 20 30 17 475               Fax: +30 210 6838 221

Alvarez & Marsal CIS LLP             Alvarez & Marsal Europe Limited     Alvarez & Marsal Middle EastLimited
14/2, Sadovnicheskaya Str.,          Calle de Velázquez                  Dubai
Moscow 115 035                       17 – 2º D                           Level 3, Gate Village Building 4
Russia                               28001 – Madrid                      Dubai International Financial Centre
Tel: + 74 959 887 745                Spain                               PO Box 506729
Fax: + 74 959 887 745                Tel: +34 91 781 5521                Dubai, UAE
                                     Fax: +34 91 435 9185                Tel: +971 4 401 9512
                                                                         Fax: +971 4 401 9511


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