Slovene bond owners call for dialogue
NatisniRespected Mr. Mario Draghi, President of the European Central Bank,
Respected Mr. José Manuel Barroso, President of the European Commission,
Respected Mr. Jeroen Dijsselboem, President of the Eurogroup,
Respected Mr. Olli Rehn, European Commissioner for Economic and Monetary Affairs.
As of April 2013, the Association of Small Shareholders of Slovenia (in Slovene: Drustvo Mali delnicarji Slovenije; in the following text: Drustvo MDS) has actively participated in procedures aimed at finding a solution for subordinated bonds issued by Slovenian business banks. We attended several meetings with key level national decision makers. The last meeting was held on October 11th, 2013 at the Slovenian Central Bank, and present representatives of Slovenian Ministry of Finance, Insurance Supervision Agency and Securities Market Agency established that all possibilities for a constructive dialogue within Slovenia have been exhausted.
Our final conclusion after the latter meeting was that key decision making levels had underestimated macro-economic consequences of devaluation of bond owners and had not been capable to negotiate substantially with representatives of European Commission (EC); although public statements by our representatives (namely the Minister of Finance), blame the EC for adopting directives that demand a devaluation of bond owners.
The statement of the Slovenian Minister of Finance (on October 15th); that adoption of legislative basis for interventions, in spite of turbulent reaction of some investors (offensively addressed as ‘interest groups’), led Drustvo MDS to take action and immediately called upon the Minister publicly, to resign from his postion. Some investors have already announced further protests by calling all Slovenian bank investors to stop paying back bank loans, because banks did not fulfill their obligations to their creditors.
We believe that such kind of intervention could have serious negative consequences, not only on the level of trust, but also the entire financial sector in Slovenia and other vulnerable members of the EU, so allow us to present our vision of cited issues.
We would like to expose some key arguments against the devaluation of owners of financial instruments:
- Slovene systemic banks have a total of 275 million EUR of hybrid and subordinated bonds.
- It’s a relatively small sum, compared to the sum prepared by the State for rehabilitation of these business banks.
- Slovenian business banks, as opposed to Cyprus, hold indirect or direct investments via institutional investors (pension funds, insurance companies, mutual funds) life savings of employed people.
- These products (bonds) were primarily sold in bank counters and clients had to untie their regular bank deposits as a recommendation by the bank clerk to buy these bonds.
- Important Slovenian business banks’ bond buyers are institutional investors, which are not prepared to publicly expose these problems because they fear the loss of their clients, and on the other hand, solely acknowledge that possible devaluation, besides losses, will cause additional need for capital increases.
- An important part of investors are represented by owners of ordinary bonds and bank deposits that also have bank loans.
- In the case of devaluation, bank deposit owners will fully cease their business cooperation with banks, transfer their savings abroad and bank loan debtors will not be able to pay-off their loans.
- The State gave a guarantee for saving bank deposits over 100.000 EUR in two smaller privately owned banks, and does not want to protect investors of hybrid and subordinated bonds, issued by state owned banks, which offered even less revenue for financial instruments with higher risk.
- Slovenian economy is small and intertwined, and every adopted intervention mainly has far-reaching negative and even positive consequences.
- Data presented by the president of one of the larger Slovenian financial institutions at the last meeting at Slovenian Central Bank, approved that key decision making levels underestimate macroeconomic consequences of possible devaluation, because common direct and indirect damage made to these investors reaches the level of all hybrid and subordinated bonds of Slovenian systemic business banks.
- All of the above clearly shows that gains for the public finances in the form of devaluated bonds will be absolutely disproportional with the extent of damage caused on micro and macroeconomic levels.
- Because of the smallness of the Slovenian economy, we can also expect great and positive multiplicative effect of appropriate solution of such issues. Daily growing fear of Slovenian savers will be at least limited and gradually established confidence in all Slovenian financial institutions.
And finally, let us emphasize that investors in hybrid and subordinated bonds issued by Slovenian business banks did not have any management rights, so they can not be responsible for the Slovenian crisis. The burden of the crisis through privatization should firstly fall upon all those who had management rights but failed to exercise them properly. We are assured that privatization on one side limits demand for cuts, which hurt especially the economy and average people, and on the other side prevent unjustified benefiting of smaller elites. By this, the system of the corporate management will also reach a true European level.
We sincerely hope that we have the capacity to find solutions together, bearing in mind the characteristics of our small country for maintaining better satisfaction of all our citizens. We call on you, respected members/leaders of European institutions, to help us re-evaluate the currently prepared changes of our legislation (namely the Banking Act), so that we can truly prepare changes, that would go in the right direction for all included parties.
Sincerely,
Rajko Stanković
President of Association of Small Shareholders of Slovenia (Drustvo MDS)
