NORD/LB Structured Finance Europe Mathias Pahlke Head of Infrastructure Europe 22nd March 2012
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NORD/LB Structured Finance Europe Mathias Pahlke Head of Infrastructure Europe 22nd March 2012 Impact of Contextual Aspects of Public Sector Debt Crisis 12. Betriebswirtschaftliches Symposium PPP 2012 – Weimar
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Impact of Contextual Aspects of Public Sector Debt Crisis 12. Betriebswirtschaftliches Symposium PPP 2012 – Weimar. NORD/LB Structured Finance Europe Mathias Pahlke Head of Infrastructure Europe 22nd March 2012. Impact of Contextual Aspects of Public Sector Debt Crisis. Agenda. - PowerPoint PPT Presentation
Transcript of NORD/LB Structured Finance Europe Mathias Pahlke Head of Infrastructure Europe 22nd March 2012
NORD/LB Structured Finance EuropeMathias PahlkeHead of Infrastructure Europe22nd March 2012
Impact of Contextual Aspects of Public Sector Debt Crisis
12. Betriebswirtschaftliches Symposium PPP 2012 – Weimar
222 March 2012
1. Introduction to NORD/LB Structured Finance.
2. Capital and Financial Markets in Turmoil.
3. Are the Banks to take the Blame?
4. The Impact on Public Sector.
5. A Conclusion …
Impact of Contextual Aspects of Public Sector Debt Crisis
Agenda
322 March 2012
Established commercial bank in northern Germany.
Successful universal bank for nearly 250 years in the market.
Market leader in the north of Germany in its business units private, commercial and corporate customers.
Excellent knowledge in the area of Renewable Energy and Infrastructure Projects.
Arranged / financed project finance throughout the crisis with debt terms of 25 yrs +.
More than 30 years of experience in ship and aircraft finance.
Deutsche Hypo is the established competence centre for commercial real estate finance within the Group.
Based in all important financial centres worldwide.
Member of the extended Guarantee Funds of the Landesbanks and savings banks.
Through the crisis by internal strength, no use of state-aid.
NORD/LB at a glance
422 March 2012
Strong support from our owners.
The „Länder“ state treaty fixes the legal position of the bank. 1992/1993: The states of Saxony-Anhalt and Mecklenburg-Western Pomerania and their savings
banks holding associations have become new additional owners.
NORD/LB at a glance
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6.00%
56.03%
28.36%
5.68%
3.94%Savings banks holding association in Saxony-Anhalt
Special purpose holding associationof the savings banks in
Mecklenburg-Western Pomerania
State of Lower Saxony
Savings banks association in Lower Saxony
State of Saxony-Anhalt
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522 March 2012
Social Infrastructure: Education (e.g. Schools, Universities…), „Blue Light“ (e.g. Fire Stations, Police Stations, Hospitals…), Accommodation (e.g. town halls, social housing, libraries, barracks…). Waste Management/Recycling
Economic Infrastructure: Roads, Rail, Train Stations, Street Lighting, (Municipal) Networks, Rolling Stock.
NORD/LB at a glance
Our core sectors in Infrastructure:
622 March 2012
1. Introduction to NORD/LB Structured Finance.
2. Capital and Financial Markets in Turmoil.
3. Are the Banks to take the Blame?
4. The Impact on Public Sector.
5. A Conclusion …
Impact of Contextual Aspects of Public Sector Debt Crisis
Agenda
722 March 2012
Does this mean we have a … ? a public debt crisis … or a bank crisis … or a EURO crisis … or a crisis of social welfare / tax evasion?
What came first ?
Is there still a problem ?
Current Capital and Financial Market Turmoil
2. Capital & Financial Markets in Turmoil
822 March 2012
2. Capital & Financial Markets in Turmoil
Is there still a Problem ?
Quelle: Bloomberg
922 March 2012
Quelle: Bloomberg
Is there still a Problem ?
2. Capital & Financial Markets in Turmoil
1022 March 2012
US House prices stopped rising as interest rates increased. This lead to defaulting mortgages. This lead to defaulting credit derivates. Both lead to Banks incurring losses. Lehman Bros fell and AIG almost. Interbank trust broke down. Bank to bank lending dropped to a minimum. Short term liquidity expensive and long term not available. More Banks fell into trouble.
History Excurse - What happened back in 2007?
2. Capital & Financial Markets in Turmoil
1122 March 2012
Public Sector step-in. Rescuing banks and injecting capital / Rescue Funds.
2. Capital & Financial Markets in Turmoil
History Excurse - What happened back in 2007?
At the same time the Public called for new RULES / REGULATION: Basel III – asking for more equity and running stress tests.
At the same time, the Rating Agencies woke up downgrading banks (and states) rigorously.
1222 March 2012
Volatility and Cost of Debt:
Quelle: Bloomberg
2. Capital & Financial Markets in Turmoil
1322 March 2012
Resulting in big variances of Risk Perception:
Quelle: Bloomberg
2. Capital & Financial Markets in Turmoil
1422 March 2012
1. Introduction to NORD/LB Structured Finance.
2. Capital and Financial Markets in Turmoil.
3. Are the Banks to take the Blame?
4. The Impact on Public Sector.
5. A Conclusion …
Impact of Contextual Aspects of Public Sector Debt Crisis
Agenda
1522 March 2012
… and will it end when the Banks are ok again?
3. Are the Banks to take the Blame?
Buying Government Bonds is safe
Government can raise taxes or print money
But EU Competitive & ECB prints money
EU, € & ECB = all members are equal
EU Members are in trouble now
€What will happen to
individual EU Members ?
1622 March 2012
Banks are reacting.
Quelle: FAZ v. 03.03.2012
Quelle: Bloomberg
3. Are the Banks to take the Blame?
1722 March 2012
The Effects of Current Market Turmoil on Banks.
Debt Market Crisis Availability of (long-term) funding Cost of (long-term) funding Volatility of funding cost
3. Are the Banks to take the Blame?
Basle III – Regulation Changes Net funding ratio requirements (matched funding) Higher Equity Ratios required Higher requirements for risk assessment – Risk Weighted Assets
Banks have to reconsider – what is good business? What kind of Borrower ? At what price? For how long?
1822 March 2012
1. Introduction to NORD/LB Structured Finance.
2. Capital and Financial Markets in Turmoil.
3. Are the Banks to take the Blame?
4. The Impact on Public Sector.
5. A Conclusion …
Impact of Contextual Aspects of Public Sector Debt Crisis
Agenda
1922 March 2012
How does this affect the Public Sector ?
Banks still are important provider / arranger of public debt.
Public Sector incurred high amounts of Debt.
4. The Impact on Public Sector
At the same time:
Tax income has been reduced by economic downturn.
Social welfare payments have increased with unemployment rates.
EU is introducing the Debt Brake (“Schuldenbremse”).
Less and less deficit spending.
This will lead to some municipalities filing for bankruptcy if they do nothing.
2022 March 2012
Banks as Key Provider of Public Debt.
Traditional public debt is less attractive: Long term vs. matched funding. Use of RWA increased due to long tenors. Introduction of different credit covenants for different public
sector entities. The Debt Brake in a new light.
4. The Impact on Public Sector
2122 March 2012
Comparison of Base Rates – before / today
Base Rates Jan 2012 vs Jan 2007
0,00%
0,50%
1,00%
1,50%
2,00%
2,50%
3,00%
3,50%
4,00%
4,50%
5,00%
5,50%
1,6 – 1,7%
4. The Impact on Public Sector
2222 March 2012
Cutting public spend. Cutting social welfare. Cutting public services. Cutting public investments. Selling public assets. Incurring the debt outside their budget.
What could Public Sector do ?
4. The Impact on Public Sector
2322 March 2012
Backward Do nothing Forward
What is to do to get out ?
4. The Impact on Public Sector
2422 March 2012
No restriction on Public Debt.
Backwards
Capital markets lose faith that Public Sector is able to reduce deficits. Debt spirals and inflation risks rise. No incentive for politicians to level out their budgets. Public spending may stay at a high level. Social welfare may stay at an “acceptable” level. There will be another EU-wide crisis when the next (bigger) bubble bursts.
Break up the European Union No idea. Astronomical cost. Other Consequences too manifold to predict the benefit. There will never be another chance for a united Europe again.
4. The Impact on Public Sector
2522 March 2012
Ignore the Debt Brake and hope for the best. Ignore the need to improve the relation between tax income
and public spending. Ignore the regulation of Basel III.
Do nothing…
Direct steer for the next Public Debt Crisis as interest rates will rise again.
You need to think about alternatives “Backward” and “Forward” again.
4. The Impact on Public Sector
2622 March 2012
Find new sources of funds (not debt) – e.g. Public Private Partnerships. Find new tools for funding – e.g. rated bonds for municipalities, joint bonds
for public sector (e.g. Financial Equalisation Scheme (“Länderfinanz-Ausgleich”) for municipalities of a region, Euro-Bonds).
Reduce public sector debt and cost and improve the stability of income.
Forward
PPPs are not for everyone but current discussions are blind and stupid. Euro-Bonds are not liked by “rich Northern states” and difficult to pass
through parliaments / public opinions. Saving and keeping up public services is always very difficult.
4. The Impact on Public Sector
2722 March 2012
1. Introduction to NORD/LB Structured Finance.
2. Capital and Financial Markets in Turmoil.
3. Are the Banks to take the Blame?
4. The Impact on Public Sector.
5. A Conclusion …
Impact of Contextual Aspects of Public Sector Debt Crisis
Agenda
2822 March 2012
Conclusions…
1. The (private) Global Investment Community is richer, faster and less emotional about
investing money (without bad conscience) than all governments combined.
2. Do nothing is no viable option.
3. Backwards is not an option for long and would not benefit the Europeans.
4. Politicians need a lot of will-power and constructive mechanisms / incentives to work
together, stabilise economies and bring together productivities and welfare.
5. A Conclusion…
Therefore, we do not have a real alternative to:
Euro-Bonds (and their “smaller siblings” on lower levels).
Reducing public sector cost and paying sufficient taxes.
Using investment alternatives such as PPPs.
2922 March 2012
Thank you for your Attention!
Your Contact:Mathias PahlkeHead of Infrastructure Origination EuropeNORD/LB Norddeutsche Landesbank GirozentraleFriedrichswall 1030159 HannoverGermanyTel.: +49 (0)511/ 361-8626Email: [email protected]
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Impact of Contextual Aspects of Public Sector Debt Crisis
