4.4.3.4 The bail-in tool

In relation to Banco Popular the SRB exercised the PONV conversion power prior to the transfer to Banco Santander, to address the shortfall in the value of Banco Popular. In particular, all the existing shares (CET 1), and the AT 1 instruments were written down, while the Tier 2 instruments were converted into new shares, which were transferred to Banco Santander for the price of EUR 1.5

In the resolution of Banca Marche, Banca Etruria, Carife and Carichieti equity and subordinated debt eligible for own funds were fully written down.6

In the case of Panellinia Bank equity and preference shares remained in the entity in liquidation and were written down. Panellinia Bank had no outstanding subordinated debt at that time.7

Also, in the case of MKB Bank, equity was fully written down. The equity was held by the Hungarian State. MKB Bank had no outstanding subordinated debt.8

In the resolution of BANIF, shareholders and subordinated creditors were bailed-in, but senior creditors were not.9 The credit claims of the senior creditors were sold to Banco Santander Totta.10

The case of HETA is the first case in which the bail-in tool was applied, although it was not a real ‘BRRD’ case, as further explained below. The Austrian Financial Market Authority (FMA), in its capacity as the resolution authority, initiated the resolution of HETA on 1 March 2015, in accordance with the Federal Act on the Recovery and Resolution of Banks (BaSAG) which transposed the BRRD. In order to prepare for the application of resolution tool(s) and since no resolution plan was drawn up ex ante, the FMA imposed a temporary moratorium on the liabilities of HETA until 31 May 2016. The final bail-in decision was adopted in April 2016.11 As a result, the CET 1 positions, the principle amount of Tier 2 capital and all other subordinated debt as well as the interest accrued thereon up to 28 February 2015 was written down to zero. In addition, the principal amount or outstanding amount of the remaining eligible liabilities (senior debt), as well as the interest accrued thereon up to 28 February 2015 was written down to a quota of 46.02%.12 This case is controversial due to two reasons. First, HETA is an asset management vehicle which has no banking authorisation and is therefore outside the material scope of the BRRD. The law transposing the BRRD into Austrian national law however explicitly required that HETA was covered.13 Secondly, part of the liabilities in scope of the bail-in tool were secured by a guarantee by the Land of Carinthia.14 However, since the bail-in decision did not cancel the guarantee provided by the Land of Carinthia, the creditors sued Carinthia to recover the difference between the amount repaid and their bonds’ full face value. Eventually, a settlement was reached with the holders of the guaranteed bonds.15

In the case of the resolution of Andelskassen, the contributed capital was cancelled. This implied that the members of Andelskassen stopped being members. All relevant capital instruments were written down to zero. In addition, all subordinated obligations of Andelskassen were written down to zero. The bail-in tool was also applied in respect of obligations of Andelskassen relating to deposits from natural persons and micro, small and medium-sized enterprises, which exceeded the maximum coverage amount under the Danish deposit guarantee scheme.16

In the case of the resolution of Jadranska Banka, all provisions and all share capital was written off and all shares of the bank were withdrawn - cancelled in order to cover all losses. Given that the established losses were higher than the amount of provisions and share capital, all relevant equity instruments were converted into ordinary capital by issuing new shares and the equity was subsequently written off and the shares cancelled in order to cover the losses. All bank's deposits and liabilities not covered under the deposit guarantee scheme were converted into new share capital of the bank by issuing new shares. The remaining amount of losses was covered by the write off of a part of the newly created capital.17

BES was subject to the bridge institution tool as a result of which BES’s sound business activities were transferred to a bridge bank (Novo Banco). The senior bonds were also transferred to Novo Banco, while all shareholders and subordinated creditors remained in BES, which was wound up. On 29 December 2015 however, the Bank of Portugal, acting as a resolution authority, ordered the retransfer of five senior bonds (out of 52 senior bonds) from the balance sheet of Novo Banco to that of BES. Conversely, the bonds became backed by BES assets (instead of Novo Banco assets), leading to a drop in prices of about 80%. As a result, not only the shareholders and subordinated debt holders, but also the holders of this senior debt contributed to the losses of BES. This approach raised questions about the principle of equal treatment amongst bondholders, taking into account that other holders of senior debt remained in Novo Banco.18 It comes as no surprise that many holders of senior debt that was transferred back to BES started legal proceedings.

In the case of the Bank of Peloponnese all remaining assets and liabilities (other than the assets and liabilities transferred to National Bank of Greece under the sale of business tool), including equity, were put into liquidation.19 It was explicitly acknowledged that no capital instruments or eligible liabilities were available to be converted into equity in order to recapitalise the Bank of Peloponnese.20