bankers, markets investors

n° 120
September-October 2012
ISSN 2101-9304
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BANKERS,
MARKETS
INVESTORS
an academic and professional review
ART I C L ES
4
Refinancing and Shareholder Value: Covered Bond Issuances
between 2007 and 2010
Jérémy MORVAN, Christian CADIOU, Nathalie COTILLARD, Laboratoire ICI (EA2652),
IAE de Bretagne Occidentale et Jean MOUSSAVOU, Laboratoire ICI (EA2652), ESC Bretagne Brest
12
Evolution of the US Stock Market Risk Premium in Periods of Crisis
Fredj JAWADI, Université d’Evry Val d’Essonne et Amiens School of Management
Mohamed AROURI, EDHEC Business School
20
Investors Expectations and Preferences during the Financial Crisis
and the Bursting Internet Bubble: Evidence from the Options Markets
Wan Ni LAI, Euromed Management
36
Efficiency in Islamic and Conventional Banks: A Comparative
Analysis in the Mena Region
Amel BELANES, Faculty of Economics and Management of Nabeul, University of Carthage
Sarra HASSIKI, High Institute of Management of Tunis University of Tunis 1
F OC U S ON . . .
50
Corporate Governance of Banks and Risk Management
by Stockholders
Jerome MAATI, Université Lille Nord de France – LEM
Christine MAATI-SAUVEZ, Université Lille Nord de France – IDP
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bankers, markets & investors n° 120 september-october 2012
© Bankers, Markets & Investors
Hervé ALEXANDRE/Université Paris-Dauphine, Franck BANCEL/ESCP Europe, Lorenzo BERGOMI/SG CIB, Bruno-Rolland BERNARD/LVMH, Éric de BODT/ESA Lille,
Hubert de la BRUSLERIE/Université Paris I, Gérard CHARREAUX/IAE Dijon, Stéphane CRÉPEY/Université d’Évry, Michel DIETSCH/IEP Strasbourg, Patrice FONTAINE/Eurofidai,
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Alain SCHATT/IAE Dijon, Éric SEVERIN/OSTL Lille 1, Jacques SIKORAV/BNP Paribas, Grégory TAILLARD/HSBC AM.
Abstracts
■ Refinancing and Shareholder Value:
■ Efficiency in Islamic and
Covered Bond Issuances between 2007
and 2010
Conventional Banks: A Comparative
Analysis in the MENA Region
4
36
Jérémy Morvan, Christian Cadiou and Nathalie Cotillard, Laboratoire ICI
(EA2652), IAE de Bretagne Occidentale
Jean Moussavou, Laboratoire ICI (EA2652), ESC Bretagne Brest
Amel Belanes, Faculty of Economics and Management of Nabeul,
University of Carthage
Sarra Hassiki, High Institute of Management of Tunis, University of Tunis 1
This paper deals with an event study assessing the influence of covered bond issuance
on European banks’ share prices. Covered bonds are debt securities backed by mortgages. In contrast to CDOs, mortgages remain on the issuer’s consolidated balance
sheet. We show that successful covered bond issuances have a positive influence on
issuers’ share prices with a three days’ delay. So, the stock market reacts not to the
issuance announcement but to the success of the issuance.
The present study investigates the efficiency of Islamic and conventional banks
belonging to the MENA region around the last subprime crisis. The efficiency estimates of individual banks are first evaluated by using the Data Envelopment Analysis
(DEA) approach. The analysis further links the variation in calculated efficiencies to
a set of explanatory variables, namely the bank profitability, liquidity, risk, size and
corporate governance. The empirical findings clearly bring forth the high degree of
inefficiency of both Islamic and conventional banks of the MENA region. But above
all, Islamic banks were slightly more efficient than their conventional counterparts
before the crisis but the trend was inversed afterwards. The regression results
focusing on bank efficiency and other bank specific traits suggest that conventional banks efficiency is negatively related to the bank economic profitability and
size but positively with liquidity, leverage and the provisions on loans. However
Islamic banks efficiency is only and positively influenced by the liquidity. Besides,
the government ownership and the manager ownership respectively improve and
decrease the Islamic banks efficiency; what is far different for conventional banks.
Finally, the duality of the manager enhances the efficiency of both banks.
Keywords: Covered bonds; Issuance; Event study; Subprime mortgage crisis.
JEL codes: G010, G140
■ Evolution of the US Stock Market
Risk Premium in Periods of Crisis
12
Fredj Jawadi , Université d’Evry Val d’Essonne, Amiens School of Management
Mohamed Arouri, EDHEC Business school
We study the evolution of the US stock market risk premium in periods of crisis
using a multivariate GARCH-in-Mean model. This topic is particularly interesting
as it enables us to learn about investor’s strategies and their attitude vis-à-vis of
risk within financial crises. To do so, we estimate in a first step a dynamic CAPM.
We study, in a second step the structural breaks in the US risk premium. Finally,
we explain our results by important facts and economic events. In particular, we
provide economic analysis for the different switching regimes and changes characterizing the risk premium dynamics over the last decades. As expected, our
findings show that the US risk premium increased significantly during periods
of crisis, but interestingly the recent global financial crisis of 2008-2009 seems
to have induced the most important change in the risk aversion and the risk
premium for the US investors.
Keywords: US Risk Premium; CAPM; Multivariate GARCH; Structural Breaks.
JEL codes: G15, F36, C32
■ Investors Expectations and
Preferences during the Financial Crisis
and the Bursting Internet Bubble:
Evidence from the Options Markets 20
Keywords: Islamic Banks; conventional Banks; Bank efficiency; DEA method; MENA region.
JEL codes: G21; G28
■ FOCUS ON…
Corporate Governance of Banks and
Risk Management by Stockholders 50
Jerome Maati, Université de Lille Nord de France – LEM
Christine Maati-Sauvez, Université de Lille Nord de France – IDP
This paper reviews previous and current research on corporate governance
in the banking sector through mechanisms in the hands of the shareholders.
This is a potentially rich area for research, because of the interplay between
governance that is desirable for bank shareholders and governance that is desirable for the regulator. It is difficult to conclude that governance rules for nonfinancial firms are also appropriate for banks, and major improvements are still
expected regarding the influence of laws and regulations on bank governance.
Keywords: Corporate governance; Bank; Literature review; Risk-taking; Regulatory mechanisms; Ownership structure; Capital structure; Board of directors; Internal control.
JEL: G28, G34
Wan Ni Lai, Euromed Management
This paper examines how the investors’ expectations of the stock market evolve over
the ten-year period from 1999 to 2008. In the past decade, the U.S. stock market experienced two major crises, with a relatively steady growth period in between. Using
options implied risk neutral distributions to proxy for investors’ expectations, the time
series of the implied risk neutral distributions of the sector returns (Nasdaq 100 and
SPDR Financial ETFs), and the broad base index returns (S&P 500 index) are extracted
and examined. It is found that in general, investors’ perception of the volatility and tail
risks of stock returns are higher during the two crises. In addition, it also shows that
the tail risk dependency between the sector and broad market returns only increases
during the financial crisis, implying that the impact of the financial crisis is more severe
than the bursting of the Internet bubble.
Keywords: Financial Crises, Investment Decisions, Contingent Pricing.
JEL codes: G01, G11, G13
bankers, markets & investors n° 120 september-october 2012
3
REFINANCING AND SHAREHOLDER VALUE: COVERED BOND ISSUANCES BETWEEN 2007 AND 2010
Refinancing and Shareholder
Value: Covered Bond Issuances
between 2007 and 2010
T
JÉRÉMY
MORVAN*
CHRISTIAN
CADIOU
NATHALIE
COTILLARD
Laboratoire ICI
(EA2652)
IAE de
Bretagne
Occidentale
he subprime mortgage crisis caused refinancing
difficulties and increased the financial institutions’
credit risk. In response to these difficulties, the
banking sector used a wide variety of financial solutions
aimed at refinancing or strengthening equity. A number
of financial securities regained interest in the eyes of
investors. The number of covered bonds issuances leapt
up. So, the aim of this paper is to assess the influence of
these issuances on the share prices of European financial
sector during the 2007-2010 period.
In the first part, we present covered bonds and explain
their attractiveness according to the pecking order theory,
within the context of restricted market liquidity owing to
a high level of risk aversion. We also present the methodological choices of the event study. In the second part
of this paper, we present the results and our comments.
■ I. Covered bonds:
definition and theoretical
point of view
JEAN
MOUSSAVOU
Laboratoire ICI
(EA2652)
ESC Bretagne
Brest
From 2007 on, covered bonds regained attractiveness
on the financial markets (ECBC, 2010).
I.1. WHAT ARE COVERED BONDS?
Covered bonds are senior debt securities generally issued
by European financial institutions. These low-risk securities
are often rated AAA. On the one hand, they are typical of
senior debt: in the event of default, investors have priority
over the subordinated debt securities holders. On the other
hand, covered bonds are backed by a cover pool. In the event
of default, investors have priority over these assets. The
mechanism therefore delivers double recourse: a recourse
against the issuer and a recourse against the underlying
assets. The pledge to deliver the assets can be contractual in
the case of structured covered bonds or legal in the case of
regulated covered bonds. The following diagram presents
the financial mechanism of covered bonds.
* [email protected]
4
Article_Morvan.indd Sec1:4
To issue covered bonds, banks needs to hold high-quality
assets as cover. This cover has two objectives: the first is
the refinancing of mortgages; the second is value creation for stockholders by minimising the cost of capital,
as the cover allows for a reduction of the risk premium.
Covered bonds are often compared to deconsolidating
financial securities such as CDOs (ECB, 2008). Indeed,
CDOs and covered bonds are similar in many ways: both
of them are backed by mortgages and both of them are
bonds with enhancement. The table below compares
covered bonds to CDOs.
There are many differences between covered bonds and
CDOs. The first difference relates to debt servicing. In the
case of covered bonds, debt servicing is paid by operating activities of the issuer. For CDOs, debt servicing is
paid by the mortgages. The cover pool that secures the
bond is only activated in the event of default. The second
difference relates to the quality of the cover. Covered
bonds guarantees are composed of a pool of high-quality
debts. These are home loans and public sector loans. The
cover pool is dynamically managed by the issuer during
the entire maturity of the covered bonds. The objective
is to always maintain the quality of the cover, which is
regularly monitored by external auditors. Therefore, in
the case of default event, the issuer must make up the
value of the cover pool. A third difference is that cover
pool remains on the issuer’s balance sheet. A dedicated
subsidiary is responsible for holding the cover pool. So,
in contrast to securitization, the issuer, as the originator,
must monitor its loan offer as the credit risk remains on
its balance sheet (Loutskina and Strahan, 2009). Covered
bonds do not therefore enable the originator to offload
the credit risk on the financial markets. A fourth difference is the simplicity of the subsidiary’s balance sheet.
The liabilities are made up of equity capital stemming
almost exclusively from the financial institution from
which the mortgage debt and covered bonds originate.
Thus the banking group has an exclusive control over the
subsidiary. The mortgages are homogenous, made up of
real estate loans provided as cover. The estimation of the
level of risk is easier. So, covered bonds are low-risk debt
for investors and low-cost for issuers.
Bankers, Markets & Investors nº 120 september-october 2012
28/08/12 15:08
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