1. News Update as @ 1530 hours, Friday 13 June 2014
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By Lynn Murahwa
Stockbrokers on the Zimbabwe Stock
Exchange are currently undergoing train-
ing on the automated trading system
(ATS),anofficialhassaid.
Securities and Exchange Commission of
Zimbabwe CEO Tafadzwa Chinamo said
today that the training marks further
progress on the setting up of the ATS on
Zimbabwe'scapitalmarketswhichshould
befullyoperationalinsixmonths.
Pakistanitrainerswhoarrivedinthecoun-
try last week have since commenced
training stockbrokers on the operations
of the ATS. Chinamo was speaking at an
Institute for Sustainable Africa (INSAF)
Conference this morning. “The first train-
ingtookplacelastFridayatMandelTrain-
ing Centre and it was well attended. In
termsofthepresentationthosewhowere
there, the brokers and the institutional
investors really found it useful. So that is
thefirststep,whattheyaregoingtodois
theninstallthesystem.
“The guys from Infotech have been here
two weeks now. There are five of them
and they are very senior people and
they take things very seriously. Accord-
ing to their timetable it should take six
months for us to be fully on, but in that
six months they will start with the peo-
ple most affected who interact with the
system most," he said. Earlier in March
this year, the ZSE announced that it had
signed an agreement with Dubai-based
Infotech Middle East for the supply and
installation of an automated trading sys-
tem.ChinamosaidtheATSwillbringcon-
veniencetotradersandinvestorsbecause
ofincreasedsecurityandefficiency.
“It’s a paradigm shift, the fact that you
cantradefromyourofficeisverykey,you
can also see all the trades going through
and the ease of which these trades are
going through is also a big step forward.
The security features are big, with this
platform you will be able to come down
from the seven day ceremony platform
to even three days and our aim is two.
“You can also talk of even administration
of dividends, right now companies do not
knowifthedividendhasgone,checksout
but they might be in someone’s drawer
for a long time so if you put together the
ATS Central Securities Depository (CSD)
youareessentiallytakingthismarkettoa
stage where we should be if we are to be
takenseriously.”hesaid.
Chinamo added that although Zimbabwe
presently does not have a coding system
in corporate governance however plans
are being made to create listing rules in
accordancewiththelaw.
“There has been a lot of talk about cor-
porate governance that we don’t have
coding in this country, it’s true that we
don’thaveacodeinthiscountrybutwith
listingit’salwaysachoicethatacompany
makes. "So we want through the listing
rules to make sure that behavior of com-
panies or what’s regulating these compa-
nies on the exchange is a high standard.
The listing rules are going to become a
structural instrument enforceable by law”
hesaid. •
Automated Trading System to be "fully on" in six months: SEC
Mr Chinamo

2. 2 ENERGY
By Tawanda Musarurwa
The Rural Electrification Tariff is set to
go up after the Minister of Energy and
Power Development called upon the
new Rural Electrification Agency board
to review the current tariff.
While announcing Zesa boards
appointments yesterday, Energy and
Power Development Minister Dzikamai
highlighted his concerns over the 'low'
rural electrification tariff to the new
Rural Electrification Agency board.
"The 6 percent levy for rural electrifi-
cation is not enough, we hope the new
boardthatistakingoverisawareofour
concerns," said the Minister. The new
REA board is constituted by chairman
Willard Chiwewe and board members
including Christinah Moyo, Fungai
Samuel Mbetsa, Christopher Shumba,
Josphat Jaji, Felix Chikwowo, Midard
Khumalo and Cecelia Chitiyo. The chief
executive officer is Joshua Mashamba.
It is however expected that the new
board will face a public backlash in
increasing the rural electricity tariff due
to the inefficiency and duplicity of the
previous board after it had become
involved in loaning activities.
Observers are generally against a tar-
iff hike. "It cannot be the new board's
firsttasktoraisetheruraltariffincrease
before it even justifies that the current
monies being paid in the public are
being utilised the right way," said one
observer. Earlier in February this year,
Minister Mavhaire dissolved the then
REA board and management after they
were embroiled in a $4 million scandal
whereby they extended to themselves
and other connected private citizens
loans amounting to close to $4 million.
Minister Mavhaire yesterday called
upon the new REA board to re-align to
its original mandate. "REA must focus
on its mandate...it must drop some
of its failed integrated or comprehen-
sive development thrusts as it is not a
development agency but a Rural Elec-
trification Agency," he said.
Meanwhile, the Energy Minister has
said the solar energy initiative, which
is being championed by the Zimbabwe
Power Company and REA, is one of the
reasons for an upward increase in the
overal electricity tariff rate.
"Whilst we have very high solar radi-
ation rates, solar power remains very
expensive. The same people that are
demanding solar power are the same
that will denounce us when electricity
tariffs are adjusted on account of using
any significant portion of solar power,"
he said. •
Rural electrification tariff to increase
Minister Mavhaire

3. 3 NEWS
The International Monetary Fund is
appointing a resident representative in
Zimbabwe for the first time in 10 years
as the southern African country seeks
to mend relations with the lender.
Christian Beddies is the IMF’s first
appointment in Zimbabwe since 2004
when the Washington-based lender
closed its office in the country, two
officials with knowledge of the situ-
ation said, declining to be identified
because they aren’t authorised to
speak to media on the matter. Beddies
has arrived in the country, one of the
people said.
The IMF is “finalising the process for
appointing a resident representative
in Harare,” who should be in place in
July, the IMF said, without identifying
the appointee.
Zimbabwe has been in default to the
IMF since 1999, former Finance Min-
ister Tendai Biti said last year. The
government said in March it will make
a “token payment” to the IMF as the
country works on a program to reduce
its debt.
President Robert Mugabe’s govern-
ment is trying to spur the recovery of
the economy, which shrank by 40 per-
cent between 2000 and 2008.
The IMF estimated that the country’s
inflation rate reached 500 billion per-
cent in 2008 after the seizure of white-
owned commercial farms disrupted
exports of crops including tobacco and
roses.
In 2009 the country abandoned its
currency in favor of the dollar and the
South African rand to tame inflation. —
Bloomberg •
IMF to appoint its first country head for Zimbabwe in a decade
Ms Beddies

4. BH24 Reporter
Liquid Telecom has completed building
its East Africa Fibre Ring which con-
nects Kenya, Uganda, Rwanda, Tanza-
nia and back into Kenya.
The creation of this first fully redundant
regional fibre ring, connecting these
countries to each other and the rest
of the world ensures that businesses
acrosstheEastAfricancommunitynow
receive continuity of Internet connec-
tivity and a much more reliable service.
According to Liquid Telecom, the East
Africa Fibre Ring ensures that its cus-
tomersintheregionwillnotbeaffected
by fibre cuts.
"Network outages will no longer cause
long periods of down-time when busi-
nesses cannot connect to the internet.
For the first time, in the event of a fibre
cut, internet traffic is automatically and
instantly re-routed around the ring,
giving consistently high speeds and
continuous uptime for businesses and
their customers, ensuring business
continuity across the region," said the
company in a statement.
Commenting on the development Liq-
uid Telecom Group CEO Nic Rudnick
said:
“This is a historic service improvement
for the people and businesses of east
Africa, especially those in Rwanda,
Democratic Republic of Congo, Burundi
and Uganda, who will not have experi-
enced such reliable internet previously.
"This pioneering achievement will add
value to east African businesses and
enable online trade within the East
African community and globally, with
reliable connectivity comparable to
anywhere else in the world."
Liquid Telecom has so far invested $20
million in the region.
The new fibre ring forms part of Liq-
uid Telecom’s Pan-African fibre net-
work, the largest single fibre network
on the continent, spanning more than
17,000km across country borders and
connecting areas where no fixed net-
work has existed before.
Liquid Telecom is one of the leading
independent data, voice and IP pro-
vider in eastern, central and southern
Africa and has operating entities in
Botswana, DRC, Kenya, Lesotho, Mau-
ritius, Nigeria, Rwanda, South Africa,
Uganda, United Kingdom, Zambia and
Zimbabwe. •
TECHNOLOGY4
Liquid Telecom connects East Africa

5. Bindura Nickel Corporation says it
expects a higher profit in the second
half of its financial year, on the back of
the full functionality of the Trojan Mine.
The Trojan nickel Mine resumed selling
nickel concentrates in April last years,
which pushed BNC to a first half year
profit of $3,3 million in the six months
to 30 September 2013.
That was from a loss of $7,9 million in
the previous year, and the miner now
expects that profits for the latest half-
year period will be higher as it ramped
up production at the Trojan mine dur-
ing the period. "The Board of Bindura
Nickel Corporation Limited advises
shareholders that based on prelimi-
nary unaudited figures, the company’s
taxed profit for the second half of the
financial year ended 31 March 2014 is
expected to be significantly higher than
the first half’s US$3.3 million.
This compares with the loss after tax-
ation of $12,9 million recorded in the
financial year ended 31 March 2013.
Factors contributing to the improve-
ment include the resumption of nickel
production from the Company’s Tro-
jan Mine and ramp-up to full capac-
ity," said company secretary Conrad
Mukanganga. The miner’s full year-end
results will be announced around 30
June 2014.
Earlier this week, regional mining con-
glomerate Mwana Africa which owns
76,3percentofBNC,saidanindepend-
ent study of an accelerated restart plan
for the nickel smelter had been com-
pleted. It said restart of the smelter
will require $26,5 million and can be
completed in the first half of next year.
The restart of the BNC smelter will fur-
ther drive the nickel producer's profits,
with the mining expecting it to start
contributingtocashflowsin2016. •
5 NEWS
BNC expects higher profits in H2
Powerspeed revenues, profits up
BH24 Reporter
Listed electrical engineering and retail
concern Powerspeed Electrical's reve-
nues for the six months ended March
31, 2014 were 9 percent up from the
prior year as profits also bumped.
Revenue for the period was up 9 per-
cent to $16,5 million while earnings
before interest rose sustainably to
$842 000 from $620 000 prior year
comparative. Profit before tax was up
80 percent to $553 000 as interest
declined to $288 000.
"Although borrowing levels fluctu-
ate continuously, there has been an
increase in borrowings to fund stock
in line with the expansion programme.
"This process is carefully managed to
ensure that any increase in borrow-
ings results in a substantial increase in
return on capital," said management in
a statement. In terms of its operations,
the company said trading now consti-
tutes the bulk of the group's business
operations and is now directing most
resources to retail division.
" We have continued to expand the
Electrosales Hardware brand by
increasing the number of branches, the
size of the branches and the range of
products on offer," said Powerspeed.
On the other hand, although Power-
speed's engineering operations con-
tributed to profits during the period
under review, the "contribution has
become even less significant in the
overall picture," said the company.
The Powerspeed board has not
declared a dividend for the half-year
just ended on the basis of the need to
fund the business. •

6. BH24

7. The equities market today went up a
marginal 0.17 percent as trades were
largely depressed.
The industrial index was up 0.31 points
to close at 180.74 points.
There were gains in Natfoods, which
added 5 cents to close at 215 cents,
and giant insurer Old Mutual which
added 1.40 cents to 250.50 cents. Tel-
ecoms giant Econet pushed up 0.59
cents to 72 cents.
Powerspeed was the only loser today,
losing 0.02 cents to settle at 1.50 cents
after the company announced its six
months interims to March 31, 2014.
The company's revenue for the period
was up 9 percent to $16,5 million while
earnings before interest rose sustaina-
bly to $842 000 from $620 000 prior
year comparative. Profit before tax was
up 80 percent to $553 000 as interest
declined to $288 000.
On a week-on-week basis, the indus-
trial index gained 2.16 points (or 1.21
points). The mining index added 0.90
points (2.03 percent) to close at 45.17
points as Bindura maintained a positive
streak, gaining 0.10 cents to trade at
3.30 cents.
Falgold, Hwange and Riozim all main-
tained previous trading levels.
Week on week mining index was up
6.48 points (or 16.75 percent). —
BH24 Reporter •
7 ZSE REVIEW
Equities in marginal gain amidst low trades

8. ZESA's new boards need to hit the
ground running, never mind who con-
stitutes the various boards.
Never mind too, the fact that ZESA
has too many separate units - 10 in all,
including the new Kariba Hydro Power
Company.
Zimbabwe has been facing crippling
power shortages for the better part of
the new millennium - that is, almost a
decade and a half now.
Despite having the same problems for
so many years, there has not been any
improvementinelectricitysupplyinthe
country. And that only points to one
thing: inefficiencies and ineffectiveness
on the part of previous boards.
The new boards must therefore play
their roles much more effectively.
It starts by them having a full appreci-
ation of their key mandates. Basically,
the essential function of each of these
boards is to superintend over a given
enterprise or parastatal. The board
must give the enterprise or parastatal
policy guidance and oversee or super-
vise the implementation of relevant
projects and programmes on a part
time basis.
Two key issues here. First, the new
boards need to give the enterprises the
"right direction". A simple case of mis-
direction was the Rural Electrification
Agency (REA) which had turned itself
into some sort of a lender or develop-
ment bank under the previous board.
Second, the fact of being a board
member is not a full-time job. The
new boards members should not see
themselves as now in positions that
is of benefit to them. Their role is to
make sure that ZESA operates effi-
ciently and effectively for the greater
good of Zimbabwe. The Government
is currently in the process of imple-
menting the country's newest eco-
nomicblueprint-theZimAsset.Andfor
ZimAsset to succeed, there is need for
electricity to drive industry. Energy and
Power Development Minister Dzika-
mai Mavhaire got it succinctly correct
in his address to the members of the
various boards:"Without energy in its
various forms, there can never be any
transfromation.Suchisthecriticallityof
our mandate. In other words, we must
take the lead in availing various energy
services in adequate measures.
"Put differently, we must recover from
our current power deficit situation to a
power surpulus situation in the short-
est possible time. Only then can agri-
culture, industry, commerce, mining,
etcetera, take off," he said.
Basically, all the ZESA units have seri-
ous issues that need to be addressed.
The new ZESA boards need to give
direction. •
8 BH24 COMMENT
New ZESA boards need to hit the ground running
enjoy the CAIO ride!

9. South Africa's rand weakened against
the dollar early on Friday after Fitch
ratings agency changed the outlook
for Africa's most advanced economy to
negative from stable.
Fitch said it was concerned mainly
about poor prospects for economic
growth and rising public debt. The
agency kept its rating at BBB.
Therandfelltoasessionlowof10.7230
to the dollar, while government bonds
gave up 7 basis points to 8.435 percent
on the benchmark 2026 issue and fell
6 basis points to 6.745 percent on the
2015 note. The biggest risk to South
Africa's growth is a crippling five month
strike in the platinum sector, which saw
GDP contract in the first quarter of the
year,althoughtherearesignsthestrike
could soon come to an end.
Standard & Poor's, Fitch and Moody's
all last downgraded Pretoria in the
aftermath of another wave of violent
labour protests in 2012, which culmi-
nated in police shooting dead more
than 30 striking miners.
S&P is due to give its rating review
later on Friday and Barclays believes
the company, which already has South
Africa on negative outlook, will down-
grade the credit rating.
"If South Africa avoids a downgrade,
we expect the rand to head back to
10.30/dollar. On the other hand, the
rand could weaken towards the 11.00/
dollar depending on the severity of the
downgrade." — Reuters •
9 REGIONAL News
South Africa's rand, govt bonds fall after Fitch rating review
Kenya sees 20.6 percent lift to GDP in rebase
Kenya expects the size of its economy
to go up by 20.6 percent when it com-
pletestheprocessofchangingthebase
year for computing output, the finance
ministry said.
The work of rebasing the economy to
2009 from 2001 will be completed by
theendofthisyear,theTreasurysaidin
the prospectus for its debut Eurobond
for up to $2 billion.
"Initial estimates for the revised GDP
estimate for 2009 is 486.6 billion shil-
lings higher than previous estimates,
this represents a 20.6 percent increase
inthelevelofGDPpreviouslyreported,”
the ministry said.
Kenya is marketing its bond to inves-
tors abroad.
Other African nations that have revised
the year they use as a base to calculate
output include Nigeria, which vaulted
to the top of African economies by size
earlier this year after it finished the
exercise.― Reuters

10. 10 DIARY OF EVENTS
The black arrow indicate level of load shedding across the country.
POWER GENERATION STATS
Gen Station
13 June 2014
Energy
(Megawatts)
Hwange 468 MW
Kariba 750 MW
Harare 45 MW
Munyati 32 MW
Bulawayo 20 MW
Imports 50 MW
Total 1364 MW
13 June 2014 - Securities and Exchange Commission of Zimbabwe 2nd Shareholders Forum &
Responsible Investing in Zimbabwe Conference 2014 Place : Cresta Lodge, Harare, Time : 8am -2pm
26 June - Masimba Holdings Limited Thirty-Ninth Annual General Meeting of Members for the
period ended 31 December 2013, Place: 44 Tilbury Road, Willowvale, Harare, Zimbabwe, Time: 12:00
THE BH24 DIARY

11. BH24

12. 12 zse
ZSE
Movers CHANGE Today Price USc SHAKERS Change TODAY Price USc
BNC 3.13% 3.30 Powerspeed -1.32% 1.50
Natfoods 2.38% 215.00
Econet 0.83% 72.00
Old Mutual 0.56% 250.50
Indices
Index Previous Today Move Change
Industrial 179.02 180.43 +1.41 points +0.79%
Mining 43.12 44.27 +1.15 points +2.67%
Stocks Exchange

13. 13 AFRICA StockS
Botswana 8,664.65 -11.96 -0.14% 12July
Cote dIvoire 246.37 +2.18 +0.89% 07Mar
Egypt 7,949.60 -75.68 -0.94% 06Mar
Ghana 2,343.98 +9.46 +0.41% 06June
Kenya 4,881.56 +12.30 +0.25% 06June
Malawi 12,662.47 +0.00 +0.00% 07Mar
Mauritius 2,074.51 -3.51 -0.17% 07Mar
Morocco 9,544.10 +21.01 +0.22% 07Mar
Nigeria 41,529.11 -40.98 -0.10% 06June
Rwanda 131.27 +0.00 +0.00% 24Oct
Tanzania 2,018.97 +25.40 +1.27% 07Mar
Tunisia 4,624.39 -39.32 -0.84% 07Mar
Uganda 1,503.90 +0.81 +0.05% 10Sep
Zambia 4,242.74 +14.95 +0.35% 10April
Zimbabwe 178.58 +1.54 +0.87% 06June
African stock round up Commodity Prices
Name Price
Crude Oil 1,300.91 -0.21%
Spot Gold USD/oz 1,292.63 -0.26%
Spot Silver USD/oz 19.38 -0.46%
Spot Platinum USD/oz 1,421.25 -0.33%
Spot Palladium USD/oz 798.50 -0.64%
LME Copper USD/t 6,770 -0.18%
LME Aluminium USD/t 1,780 -1.17%
LME Nickel USD/t 18,230 -1.73%
LME Lead USD/t 2,095 -1.41%
Quote of the day —"The history
of the world is the histo-
ry of a few people who had
faith in themselves." - Swa-
mi Vivekananda
Globalshareholder.com

14. The International Energy Agency said
Friday Iraqi oil supplies aren’t at imme-
diate risk, though the return of oil
exports from the country’s north look
increasingly elusive.
The oil market has been focused on
events in Iraq since Islamist militants
seized control of the northern city
of Mosul Tuesday. Crude prices shot
higher this week, climbing to their
highest level since September as news
emerged that the militants had made
rapid gains across northern Iraq, rais-
ing concerns about oil supply.
Iraqi oil supply is crucial to meet-
ing growing global oil demand in the
coming years, with the IEA predicting
roughly 60% of the growth in oil pro-
duction capacity from the Organization
ofthePetroleumExportingCountriesin
the next decade will come from Iraq.
However, in its closely watched oil mar-
ket report, the IEA said that provided
the conflict in Iraq doesn’t spread fur-
ther, it is unlikely to put additional oil
supplies at risk.
Iraq hasn’t exported any oil from its
north since March due to repeated
attacksonitspipelinetoTurkey,butthe
bulkofitsoilproductionisconcentrated
in the far south of the country and has
been on the rise in recent months.
The turmoil in Iraq adds to the chal-
lenges already facing OPEC as it con-
tends with chronic supply disruptions
in several of its members. Political
unrest in Libya has cut the country’s oil
output to a fraction of its pre-civil war
levels and Iranian output remains con-
strained by western sanctions.
Until now, the supply disruptions have
been offset by record growth in non-
OPEC supply, but the IEA said pressure
on OPEC to pump more oil will ratchet
up in the second half of the year.
The Paris-based energy watchdog
increased its forecast for the demand
for OPEC’s oil in the second half of the
year by 150,000 barrels a day to 30.9
million barrels a day, nearly 1 million
barrels a day more than the oil cartel
produced in May.
In its semi-annual meeting in Vienna
earlier this week, the producer group
elected to keep its oil output quota
unchanged at 30 million barrels a day.
— MarketWatch •
14 INTERNATIONAL NEWS
No immediate risk to Iraq’s oil supplies: IEA

15. The European Union has served notice
that senior bondholders will be in the
firing line for losses when banks go
bust, yet the law’s fine print leaves
room for confusion.
Policy makers from Michel Barnier to
Jeroen Dijsselbloem have heralded
legislation published yesterday as an
iron-clad system for shifting the bur-
den of bank failures from taxpayers to
investors. In time of crisis, the direc-
tive’s exemptions and caveats give
regulators plenty of wiggle room, ana-
lysts say.
“Unfortunately both for the institutions
concerned and the broader needs of
a fully functioning financial system, a
considerable degree of uncertainty will
persist,” Richard Reid, a research fellow
for finance and regulation at the Uni-
versity of Dundee in Scotland, said by
e-mail. “Experience has taught us that
when rules such as these are put to the
test, it is seldom as straightforward as
planned.”
Under the new rules set out in the
Bank Recovery and Resolution Direc-
tive, starting in 2016 authorities will, as
a general rule, require 8 percent of a
struggling bank’s liabilities to be wiped
out before recourse can be made to
industry funds or taxpayer support.
Ordinary shareholders would face
losses first. If that’s not enough, hold-
ers of other instruments that count as
capital, such as preferred shares and
junior bonds, and then senior unse-
cured creditors would be targeted.
‘Toughest’ Rules
Creditors will be protected from suf-
fering losses heavier than those they
would have incurred had the bank
been put through normal insolvency
proceedings. Special arrangements
would apply for bank depositors, with
holdings of as much as 100,000 euros
($136,000) shielded from writedowns.
Barnier,theEU’sfinancialserviceschief,
has said that the BRRD is the corner-
stone of the EU’s response to the 1.5
trillion euros of taxpayer money gov-
ernments made available to prop up
their banks between 2008 and 2012.
15 Analysis
New EU Bank-Creditor Loss Rules Leave Room for Confusion

16. “ThenewEUrulesareoneoftheworld’s
toughest in terms of imposing losses
on banks’ shareholders and creditors,”
Barnier said last month. “This is not
business as usual; this is a new world
of dealing with failing banks.”
The legislation interlocks with other
post-crisis laws published today, includ-
ing a toughening of rules on national
guarantees for bank deposits and
stricter regulation of traders.
The measures also underpin a push by
the euro area to centralize the handling
of failing banks by establishing a cen-
tral resolution authority backed by a
joint industry-financed 55 billion-euro
fund.
Forced Losses
While the message from governments
and regulators is clear-cut, the BRRD
itself is nuanced. For example, the law
allows nations some scope to provide
so-called precautionary aid to banks
withouttriggeringariskofseniorbond-
holder losses.
Such aid could be applied in cases
where a bank is found in a stress test
to need more capital.
Regulators can grant exceptions from
forced losses if they considered that
writing down a class of securities would
do more harm than good.
Limits here would include that exemp-
tions for some creditors shouldn’t
lead to writedowns for others that go
beyond the losses they would have
faced if the bank went through a tradi-
tional bankruptcy procedure.
The European Commission would also
have powers to vet such carve-outs.
When exemptions are used, the EU’s
state-aid rules, which require bail-ins of
junior creditors before public money is
used, would still apply.
‘Explicit Inclusion’
“The risk for senior bondholders
has very much increased,” said Car-
ola Schuler, a managing director for
Moody’s Investors Service in Frankfurt.
“Still, the law is drafted in a way which
means that, within certain parameters,
certain conditions, the governments
could still step in.”
Moody’s said last month that the leg-
islation, with its “explicit inclusion”
of writedowns of senior unsecured
creditors, had prompted it to place 82
European banks on a negative ratings
outlook.
The application of the rules will need to
be kept under review, Moody’s said, as
it left “some latitude for authorities” to
avoid bailing-in senior creditors when
this would threaten financial stability.
“The directive includes several carve-
outs that leave open the possibility to
implement a resolution that includes
support for creditors,” Schuler said.
“We don’t have full clarity yet on what
this means in practice.”
Capital Cushions
The approach to banks in crisis has
varied since the crisis erupted in 2008,
withseniorssparedatnationalizedSNS
Reaal NV in Netherlands and at Irish
banks, while being targeted as part
of the euro area’s bailout of Cyprus in
2013.Seniorsalsotookathitwhentwo
Danish banks failed in 2011 and were
processed under national resolution
rules.
In addition to possible loopholes in the
rules, seniors are also protected by
banks’ growing cushions of capital and
junior debt.
Banks “are issuing less unsecured sen-
ior debt as they focus on increasing
deposits and shrinking balance sheets.
Its importance is waning,” said Steve
Hussey, an analyst at AllianceBernstein
Ltd. in London, which manages about
$445 billion.
“They are also taking big strides to
increase the size of their cushions of
equity capital, Additional Tier 1 instru-
ments like CoCo bonds and subordi-
nated debt that would offer a buffer to
senior creditors from losses in a crisis.”
Since 2009, banks including Barclays
Plc (BARC), Lloyds Banking Group
Plc, and UBS AG have issues CoCos, a
term used to describe bonds that are
specifically designed to convert into
ordinary shares when a bank’s capital,
a measure of the state of its finances,
breaches a pre-agreed level.
“Given these changes, you would need
to have a massive overnight event,
a Kerviel, plus a London Whale, plus
more besides, to get to a point where
senior unsecured debt might be tak-
ing a loss,” Hussey said, in reference
to trading scandals that have hit Soci-
ete Generale SA (GLE) and JPMorgan
Chase and Co. - Bloomberg •
16 Analysis