European officials think voters are more important than the institutions that buy their bonds, but that’s a costly error.
What are the powers that be at the European Union and European Central Bank thinking?
They have now concocted a very dangerous scheme to buy back junior bank bonds that were “mis-sold” to retail investors and “voiding” — yes, “voiding” — EU bank indentures in the process.
A number of large financial institutions are angry at what the Europeans have done, which is create a whole new class of bondholder that is not found in any indenture. In doing so, they have not only likely violated EU bank regulations, but made a mockery of them in the process.
EU officials may applaud their ingenuity and publicly congratulate each other for their political partisanship, but there will be a price to pay. Whether it was the banks in Spain or Italy, no bonds were “mis-sold.” Nothing of the sort happened. They just used political expediency — chicanery — to protect the people in power.
You should not invest in what you cannot trust. If you own European bank bonds, then I would recommend taking a serious look at your holdings — Tier I, Tier II, contingent convertibles, subordinated debt, senior debt — all of it. If one category of bonds can be “mis-sold” today, then another category, if politically expedient, can be “mis-sold” tomorrow. If the Europeans can do this with bank debt then they can certainly do it with other bonds. — Bloomberg.