the regulatory cacophony in European's banking complex surely wasn't apt at building confidence. However,
I was pretty convinced that after some months of muddling through, a feasible path to resolve most issues would evolve, and in fact - Greek's distressed exchange and Draghi's LTRO were important parts in what
looks like a solution.
Personally, I feel that most central bankers, particularly Bernanke and Draghi are the ones who contributed most to a workable solution - Bernanke with TARP and Draghi with the LTROs - subtly different, yet satisfying
Investment wise, I took some risk last fall, when I saw the Eurozone debt crisis in full motion and looked at bank preferreds of players that were already satisfying the 9% Basel III criteria. I found that the European preferred and subordinated bank debt market had once again thrown out the baby with the bathwater, as most banks of BeneLux origin were already above 9% Core-Tier-1 status or within an inch of passing. So I was able to pick up perpetual Tier-1 preferreds of ING (similar to IDG), SNS Bank - both of the Netherlands and KBC Bank of Belgium for 50-60% on the dollar. As I expected these banks had managable PIGS exposure and associated writedowns of peripheral Eurozone bonds. Now I'm just waiting - the instruments have recovered to the 80-90% range and I'm just waiting for a regulatory par call or redemption at 100% over the coming years. In the meantime I'm collecting a nice 8-10% copons per instrument, which translates into a coupon yield of 10-20% depening on the paper - in addition to the principal gain at the time of redemption.
I saw that many Banks also tried tender offers of all their debt and preferred paper, and such "liability management" transactions have contributed mightily to a recent pick up in tangible equity of Eurobanks in general. So yet again, after investing in FFC and FLC in 2010 which I still hold, I became a "coupon clipper". However I don't plan to remain one forever. This was a nice way for a >50% gain when you (like me) believed that last year's malaise wouldn't amount to the end of the line of Eurozone banks.
Now, after the principal investment had shot up from the 50-60% range where I bought the preferreds, I'm just sitting and waiting for my first high-yield coupons to trickle in ... ING and KBC distribute their payments in the spring while SNS Bank is due late November.
all the best