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European banks eye state debt-for-equity swaps

UniCredit CEO Jean Pierre Mustier is among bankers pushing for easier corporate access to government equity, as state-backed loans have heightened firms’ indebtedness, and firms’ sales struggle to recover.


European Banking Federation president Jean Pierre Mustier

European banks, especially in Germany, are pushing for hard-hit borrowers to have easier access to state equity support as the economic impact of the coronavirus continues.

Banks have extended hundreds of billions of euros in coronavirus liquidity as part of new state-backed loans programmes, run through development banks such as Germany’s KfW and France’s BPI.

They have nevertheless had to take part of the risk of loans to all but the smallest companies. Some of that lending already looks riskier than before, as new coronavirus restrictions proliferate and economies struggle to recover.

“[Across Europe, governments need] a very pragmatic way to extend capital or quasi-equity on a relatively fast basis,” says UniCredit chief executive and president of the European Banking Federation Jean Pierre Mustier.

Now it’s important to look at the solvability of the corporate client so that these clients can then borrow on an arms-length basis with the banks
Jean Pierre Mustier, UniCredit

That’s why UniCredit, which owns Germany’s third-biggest private bank HVB, has spoken with the German government in order that coronavirus KfW loans might be converted into subordinated instruments, even equity.

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