Bank Finance: Rules of the Game

Bank Finance: Rules of the Game

Bonds

In 1988, then state-owned lender Banamex needed capital. Sourcing it cheaply was not easy. So the Mexican bank structured a new type of bond that swapped $200 million of interbank deposits into a 20-year subordinated liability. The depositors were already somewhat resigned to leaving their cash in the bank, having had it already rolled over at three-year intervals since the sovereign defaulted in 1982. Banamex paid just 75 basis points over Libor, sweetening the deal for creditors by backing the notes with zero-coupon US Treasury bonds. The transaction was an early example of a Latin bank looking creatively at a problem. While the financing squeezes for the region’s largest banks have, by

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