Cyprus

Bank Resolution in Greece

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The result of Sunday’s referendum (July 5, 2015) which rejected the latest proposed bailout by the European authorities was unequivocal. The next steps in this crisis are far less clear, ranging from a swift renegotiation of the terms of the bailout together with an injection of liquidity into the Greek banking system in the most benign scenario to, at the other end of the spectrum, Greece exiting the Eurozone and attaining “pariah status” in the international capital markets.

In this client alert we focus on one aspect of the issues facing Greece – the liquidity crisis facing the Greek banks. We discuss bank resolution procedures available to the Greek authorities.

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Implications for the Imposition of Capital Controls in Greece

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Introduction

Following the recent event over the weekend (27/28 June 2015), we set out below a short guide on the current status in Greece.

Background

Months of negotiations on a deal to restructure Greece’s debts appear to have failed. Greek Prime Minister Alexis Tsipras has called a referendum for 5 July 2015 on the draft bailout proposals (the “Proposals“) from the EU[1]. Mr Tsipras government will campaign against the Proposals which required a number of measures relating to VAT increases, budgetary restraints, pension reforms and privatisation measures.  On Saturday 27 June 2015 Eurozone finance ministers refused to extend the current EU bailout programme which expires on 30 June 2015. In response on Sunday 28th July 2015 the Greek government announced the imposition of capital controls.

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The Legacy of Lehman Series: The EU Bank Recovery and Resolution Directive – Bringing Stability Back to the European Banking Sector

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The collapse of Lehman Brothers was a pivotal moment which had catastrophic effects on the European financial sector which are still reverberating. Inadequacies in banking regulation were highlighted as most jurisdictions had few (if any) specific laws which covered the peculiarities of the banking sector. Documentation and legislation was tested and often found wanting by the courts. The stresses have acted as a catalyst for change in practices, regulation and documentation.

In order to fill the lacuna in statutory tools available to European governments and central banks to deal with failing financial institutions, many European jurisdictions have enacted new legislation. The legislation adopted differs between various jurisdictions within Europe and in some cases the tools at the disposal of the appropriate governing bodies of such jurisdictions are relatively limited.

Six years on after the collapse of Lehman Brothers, the European banking sector is back in the spotlight after a certain amount of turmoil over the first half of 2014. The European banking sector still has its vulnerabilities. The introduction of a comprehensive set of tools which enable relevant authorities to take early and decisive action in relation to failing financial institutions is therefore imperative.

This common framework across the European Union will be provided by the European Bank Recovery and Resolution Directive (“BRRD”) which was adopted by the European Parliament on 15 April 2014. This client alert in the Legacy of Lehman series considers the key terms of the BRRD and the impact it may have in relation to the financial industry.  Read More.

The Legacy of Lehman Series

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Faced with huge losses in the subprime mortgage market, Lehman Brothers Holdings Inc. (the ultimate parent of the Lehman group) filed for Chapter 11 bankruptcy protection on 15 September 2008, a momentous event which shortly preceded the collapse and break-up of that group, including the filing for administration of Lehman Brothers International (Europe), the main operating subsidiary for the UK and Europe.

Looking back from the perspective of the sixth anniversary of the collapse, its consequences still occupy the English courts with numerous decided, settled, on-going and forthcoming cases. This client update is the first in a series describing and analysing the legal legacy of the Lehman collapse by looking at subsequent changes to financial industry regulation in the UK and across Europe to address the shortcomings highlighted by Lehman’s collapse and also considers certain key pieces of Lehman-related litigation in the English courts and the principles which resulted from those cases.  Read More.

The Nationalisation of Banco Espirito Santo – The Aftermath

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The Bank of Portugal announced on Sunday 3 August 2014 that it applied its powers under the Decree law No 31/2012 of 10 February 2012 (the “Resolution Law“) to split Banco Espirito Santo (“BES“) into a “good bank” and “bad bank” (the “Restructuring“) and to transfer certain of BES “good” assets and liabilities to “Novo Bank”.

Following the release by BES of its half year results, it was apparent that the financial stability of BES was more questionable than many had suspected.  A rapid decline in BES’s share and subordinated bond price followed and on the weekend of 2 and 3 August, the Bank of Portugal must have come to the conclusion that its earlier plea for a private sector recapitalisation was unrealistic. On 3 August, the Bank of Portugal publicly announced the split which left certain assets with BES, which also retained the subordinated debt. The senior bonds and many of the quality assets of BES were transferred to Novo Bank.

In view of the European Central Bank’s ongoing asset quality review, the BES case was seen as a test case in Europe. This client alert looks at some of the recent history of the Espirito Santo group and BES and considers what will happen in the aftermath of the nationalisation of BES and following the filing by certain Espirito Santo holding companies for controlled management (gestion contrôlée) in Luxembourg.  Specifically, this client alert considers:-

  1. the background and recent history relating to BES and the Espirito Santo group;
  2. the limited legislative tools available to the Bank of Portugal under the Resolution Law;
  3. what the effects of the use of the Resolution Law will have on BES stakeholders; and
  4. what the next steps are likely to be in relation to Espirito Santo International (“ESI“), Rio Forte Investments (“Rio Forte“) Espirito Santo Financière SA (“ESFIL“) and Espirito Santo Financial Group (“ESFG“) that have filed for a controlled management process in Luxembourg.​

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