Haircuts

[Nor]

I'm wondering what would happen to bank specified preference shares, or whatever their proper name is, in the event of a bank getting into difficulties, under the new haircut model. In the old system when a bank goes bankrupt it is easy to see that the sp holders have priority over shareholders and that unless sp holders get fully paid then ordinary shareholders get nothing.
But what about under the haircut model where even the depositors are expected to lose something? How would the specified preference holders be given more favourable treatment than ordinary shareholders?

[GTM 3442]

I suspect that the Minister of Finance, the Reserve Bank, and the Statutory Manager will run round in ever-decreasing circles and make it up as they go along.

https://www.rbnz.govt.nz/regulation-and-supervision/oversight-of-banks/standards-and-requirements-for-banks/open-bank-resolution

[Nor]

I suspect that the Minister of Finance, the Reserve Bank, and the Statutory Manager will run round in ever-decreasing circles and make it up as they go along.

https://www.rbnz.govt.nz/regulation-and-supervision/oversight-of-banks/standards-and-requirements-for-banks/open-bank-resolution

Thanks for that. So my quick conclusion based on reading as far as paragraph 4 is that as it states that creditors' (i.e. depositors') money will only be touched if there is insufficient shareholders' funds then it follows that specified preference holders' funds should only be touched if there is insufficient shareholders' funds. Of course I'm assuming here that there is some distinction in the accounts between shareholders' funds and specified preference capital or that one can be made. I'm not an accountant but next time I'm glancing at some accounts I will look for it.

[Valuegrowth]

https://www.stuff.co.nz/business/money/102385754/critics-want-changes-to-new-zealands-bank-rescue-plan

[Nor]

https://www.stuff.co.nz/business/money/102385754/critics-want-changes-to-new-zealands-bank-rescue-plan

That's a bit old. Perhaps it's another example of the bureaucrat's tendency 'to do the easiest thing.
(Meaning the policy outlined in the article).

[Valuegrowth]

Hope we are not going to have a banking crisis this time around after the longest bull market(March 2009 to January 2020) in history. Property market is also the same. Global properrty marekt is sitting on a $175 billion debt.

[Nor]

I hope so too. But I come back to my question, is it safer investing in bank specified preference shares rather than ordinary shares, and if so how much safer. Seems to me that how that bit will work should be a known fact, not left to be decided at the event. (By someone doing the easiest thing for example, like treating ordinary and spec pref equally).

[Nor]

I see the US has sorted the SVB situation by making the depositors whole and nothing i.e. almost certain wipeout for the share and bond holders. And intends this for all future failures.
Not the shareholder friendly 'everyone has a haircut' model current here.
Still scratching my head about what advantage there is to holding bank bonds rather than shares.

[Nor]

So, I see the OBR site says depositor's funds only used if shareholders funds are insufficient. Not as democratic as I thought.

[GTM 3442]

I see the US has sorted the SVB situation by making the depositors whole and nothing i.e. almost certain wipeout for the share and bond holders. And intends this for all future failures.
Not the shareholder friendly 'everyone has a haircut' model current here.
Still scratching my head about what advantage there is to holding bank bonds rather than shares.

Over the time that Westpac shares have gone from about $40 to $20, I don't think that Westpac bonds have missed an interest payment.

[Valuegrowth]

How are they going to fix the financial system once and for all? What the safest banks in New Zealand? For me Kiwi bank is the safest followed by ANZ,WP and ASB. I also feel this is the time to avoid Banking and Tech stocks. Please correct me if I am worng.

https://hbr.org/2012/06/four-ways-to-fix-banks

[ynot]

How are they going to fix the financial system once and for all? What the safest banks in New Zealand? For me Kiwi bank is the safest followed by ANZ,WP and ASB. I also feel this is the time to avoid Banking and Tech stocks. Please correct me if I am worng.

https://hbr.org/2012/06/four-ways-to-fix-banks
Just my humble opinion, if it was fixable it would have happened before now.
We are at that spot on the road where the can has finally come to rest. This could get interesting.

[ynot]

Interested to see how the Ausi banks fare this week.

[Nor]

Interested to see how the Ausi banks fare this week.
From Reuters,
"It was not yet clear if the deal is enough to restore trust in lenders around the world. The first indication could come when stock markets open in a few hours in Asia, Australia and New Zealand."
The UBS deal to takeover Credit Suisse of course.
First indication to come from NZ, that's giving us world leading prominence we don't often have.

[Nor]

In UBS/Credit Suisse they've wiped out the tier 1 bond holders but left the ordinary s/holders with something ! ?
Maybe it makes sense in a way because how can you have a takeover if there are no shareholders?
To my simple mind it is consoling that in the US situation the worry seems to be flight from their small banks, of which they have thousands, to bigger banks, and we mainly have bigger banks.

[Valuegrowth]

Just my humble opinion, if it was fixable it would have happened before now.
We are at that spot on the road where the can has finally come to rest. This could get interesting.
Thank you for your comments Ynot. As long as they delay fixing the finacial system, we may see banking crisis agian and again. I am wary about keeping money in banks. Rather,I will buy value stocks.
https://www.theguardian.com/business/2023/mar/19/silicon-valley-banks-collapse-will-not-be-a-one-off-a-banking-crisis-was-long-overdue

[ynot]

Thank you for your comments Ynot. As long as they delay fixing the finacial system, we may see banking crisis agian and again. I am wary about keeping money in banks. Rather,I will buy value stocks.
https://www.theguardian.com/business/2023/mar/19/silicon-valley-banks-collapse-will-not-be-a-one-off-a-banking-crisis-was-long-overdue
With reference to fixing the US financial system, some say the Fed is a structural defect in the US financial system .
I know limited detail of the Fed function but it is certainly unique and is not exempt of detractors.

[SailorRob]

https://twitter.com/F_Compounders/status/1638140621046128640?s=20