You may not even call it expropriation, but by my standards it looks a lot like it.
I am referring to the rapacious decision by the Portuguese central bank, taken shortly before the end of the year, to move five senior unsecured bank bonds issued by Banco Espirito Santo (ah how ironic that name) from the “good bank”, Novo Banco, to the bad bank, BES. With this gybe the central bank retroactively filled a €1,4bn hole in the balance sheets of the “good bank” revealed by the ECB's stress tests (remember them? Well, here they are in action) in November. And in this way, symmetrically, however, it inflicted losses on the bondholders who held those five bonds. And so, overnight… poof! deadweight loss for the bondholders in question.
An arbitrary decision by the Portuguese central bank, but selective.
Already. Because it only targeted bank bonds issued under Portuguese law with high minimum denominations, held predominantly by institutional investors, such as mutual funds, pension funds.
It is a pity that, at the end of the day, the Portuguese decision will ultimately fall on the clients of those funds (which apparently also include BlackRock and the legendary Pimco) who had these bonds in their stomachs. Luckily for them, those funds are abundantly diversified and the losses won't be as lethal as they could be if a saver had invested all of his money in a single bond.
And it doesn't matter if the Portuguese central bank has violated the principle of "pari passu", which in simple terms means that everyone (bondholders holding senior unsecured bonds) should be treated equally.
Crew, there's no need to panic, that's clear. But you also cannot ignore that the new bail-in rules have been in force for a few days: so you should read carefully the prospectuses of the bank bonds you hold, to understand what type they are and not be taken by surprise.
