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Doesn't rescheduling/restructuring the debt mean that the banks lose money? [Because the present value of the future revenue stream is reduced]

Those whom the Gods wish to destroy They first make mad. -- Euripides
by Carrie (migeru at eurotrib dot com) on Thu Nov 30th, 2006 at 09:53:43 AM EST
[ Parent ]
It does, theoretically at least. However restructuring schemes are built on revised business plans, some of which actually manage to come up with higher profit forecasts on the long term. Market advisors can be very "creative"

When through hell, just keep going. W. Churchill
by Agnes a Paris on Thu Nov 30th, 2006 at 10:58:49 AM EST
[ Parent ]
Rescheduling can simply mean that principal repayments are pushed into the future, but interest keeps on being paid - thus no losses for banks.

There can be a reduction in interest rates payable to banks - formally no losses, but less revenue for banks than before

Then there can be debt cancellation (write off) - then banks will have formally lost money. What happens in practice is that banks have provisioned amount right from the start, and if a transaction looks to be in trouble, they'll provision more (before even having losses or even negotiating a restructuring). Using these provisions up when restructuring does not create losses for the bank (as they have been "preemptively" booked in earlier periods) Banks typically pile up a lot of provisions in good times (subject to tax authorities, as these provisions reduce profits and thus taxes payable) and can ride out quite significant losses for a while before it really hurts.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Nov 30th, 2006 at 11:15:56 AM EST
[ Parent ]
No idea. Probably, the response is : it depends.

Looking at the chunnel, no, if you have some shareholders for taking the bloodbath.
If I have understand properly, it is a bonanza for the banks having financed it at the right time.

La répartie est dans l'escalier. Elle revient de suite.

by lacordaire on Thu Nov 30th, 2006 at 05:38:37 PM EST
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