Banco BPI and the reimbursement of contingent convertible subordinated bonds (CoCos)

This case study focuses on the BPI’s recapitalization plan, its causes and the reasons for the early reimbursement of CoCos in June 2014. The need for a capital intervention and the subsequent subscription agreement with the Portuguese Government of €1 500 million Core Tier 1 instruments were the result of a temporary capital buffer for sovereign debt exposures imposed by the European Banking Authority. The capital increase, the positive earnings in 2012 and 2013, the improvements in the sovereign debt crisis, the implementation of Basel III, in addition to the public exchange offer and the conversion of deferred tax assets into tax credits are the main factors for concluding the entire recapitalization operation three years before the deadline.

Cross sectional default probabilities in european corporate bonds

This study attempts to identify basis-trading opportunities in the European banking sector by comparing two different measures for the market’s assessment of risk: market-observed CDS spreads and model-implied Z-spreads. Using a sample of 10 banks, over a period of 3 years following the European banking crisis, it can be concluded that there were arbitrage opportunities in the sector, as evidenced by the derived negative bases.