CEE Macroeconomic and Fixed Income Research

Analysts’ View:

CZ Macro: On a positive note, the Czech Statistical Office reported on Friday that the Czech economy expanded 1.5% y/y (0.4% q/q) in 4Q14, up from the initial estimate of 1.3% y/y (0.2% q/q). For the whole of 2014, GDP growth remained unchanged at 2.0%. As significantly lower revenue from excise tax on tobacco products (due to newly enforced regulation of pre-stocking in 2014) served as a considerable one-off drag on the y/y growth in 4Q14, we continue to foresee the Czech economy growing 2.5% in 2015 with risks currently skewed upwards (e.g. given the improving outlook for the growth of the German economy and lower fuel prices). That being said, the recent revision had no major impact on markets and we maintain our forecast for the 10Y Tbond yield at 0.39% at the end of 1Q15.

Traders’ Comments:

CEE Fixed income: The sudden appreciation in the CHF mid-January when the SNB decided to stop supporting the EUR has claimed another high profile victim: Heta Asset Resolution AG, the HypoAlpeAdria “bad bank”. A recent review of the value of the company’s assets showed a drop in value of EUR 8.7 bn (which seems to stem at least in part from losses in CHF linked exposures) resulting in negative equity of EUR 7.6 bn. The Finanzmarkausicht (the Austrian bank regulator FMA) put Heta into resolution and ordered an immediate debt moratorium after the government refused to pump in any more taxpayer money following losses of EUR 5.5 bn since HypoAlpeAdria was nationalised in 2009, making this the first case under new European Union rules imposing losses on bank bondholders. The FMA is taking over the winddown of Heta, which kept around EUR 18 bn of Hypo’s assets when it was set up last year. While it works out a resolution plan it won’t repay Heta’s liabilities under an Austrian law that came into force on January 1st to implement the European Union’s Bank Recovery and Resolution Directive. The immediate debt moratorium means EUR 950 mn of bonds due March 6 and March 20 won’t be repaid. It affects EUR 9.8 bn in outstanding bonds, supplementary capital and Schuldschein loans, EUR 1.24 bn of debt to Pfandbriefbank (Oesterreich) AG, a bank that handles bond issues for Austrian provinvial banks, as well as loans from BayernLB. Putting Heta into resolution means there is no insolvency procedure which would have endangered the sale of Hypo Group Alpe Adria AG, the “good bank”. Moreover, avoiding Heta’s insolvency also means that the Carinthia province’s guarantees for Heta’s bonds aren’t triggered under Austrian law, the finance ministry said. The ministry reiterated that it will honour a federal government guarantee for a EUR 1 bn subordinated Heta bond, should it become due.