BANKERS, MARKETS INVESTORS an academic and professional review

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1 n 120 September-October 2012 ISSN euros revue-banque.fr BANKERS, MARKETS INVESTORS an academic and professional review ARTICLES 4 Refinancing and Shareholder Value: Covered Bond Issuances between 2007 and 2010 Jérémy MORVAN, Christian CADIOU, Nathalie COTILLARD, Laboratoire ICI (EA2652), IAE de Bretagne Occidentale et Jean MOUSSAVOU, Laboratoire ICI (EA2652), ESC Bretagne Brest 12 Evolution of the US Stock Market Risk Premium in Periods of Crisis Fredj JAWADI, Université d Evry Val d Essonne et Amiens School of Management Mohamed AROURI, EDHEC Business School 20 Investors Expectations and Preferences during the Financial Crisis and the Bursting Internet Bubble: Evidence from the Options Markets Wan Ni LAI, Euromed Management 36 Efficiency in Islamic and Conventional Banks: A Comparative Analysis in the Mena Region Amel BELANES, Faculty of Economics and Management of Nabeul, University of Carthage Sarra HASSIKI, High Institute of Management of Tunis University of Tunis 1 FOCUS ON Corporate Governance of Banks and Risk Management by Stockholders Jerome MAATI, Université Lille Nord de France LEM Christine MAATI-SAUVEZ, Université Lille Nord de France IDP In partnership with Association française de finance

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3 Article submission : authors guideline Bankers, Markets & Investors aim is to make up-to-date scientific research in financial matters available to members of the profession. Articles can focus on all matters related to financial markets. Financial models can be applied to a wide range of subjects: financial assets evaluation, risk analysis, investment policies, microstructure and markets organisation. Applications to corporate finance, assets and liabilities management and strategy of financial intermediaries are welcome. Analysis of new products or contracts, which concern retail as well as corporate markets, new technical applications and new developments of financial markets can also be dealt with as far as their evaluation and usefulness are analysed. Articles submitted for publication will be read by a scientific committee of two competent experts. The committee will be particularly attentive to the explanations given on the concepts from an economic, financial and mathematical point of view. Any kind of illustrations and graphs are welcome. A significant part of the article will concentrate on the possible practical applications of the methods and concepts which are presented, and will insist on implications in related financial areas. Empirical studies should mention their sources of information, or else provide the data drawn upon in appended notes. Articles can be written exclusively in English, in straight forward correct language. Mathematical developments should be limited to essential notions, and originals aspects, if any, are to be detailed in a note. Reference to scientific literature shall also be limited to essential matters. The length of the articles should not exceed 20 pages (ideally 14 to 15 pages, including graphs and notes). Shorter articles are naturally welcome. Each article submitted has to include an abstract in English of less than 500 characters. The articles (.doc,.rtf,.txt, but no.pdf or.tex) have to be sent by to hauvette@revue-banque.fr. Strategic Committee Francis CANDYLAFTIS/Eurizon Capital, Bernard DUMAS/Université de Lausanne, Thierry FOUCAULT/HEC, René KARSENTI/ICMA, Denis KESSLER/Scor, André LÉVY-LANG, Bertrand de MAZIÈRES/BEI, Théo NIJMAN/Université de Tilburg, Tom STEENKAMP/ABP Investments, Mike WRIGHT/Université de Nottingham Editorial Committee EDITOR : Jean-François BOULIER/ Aviva Investors France Sanvi AVOUYI-DOVI/Banque de France, Bruno BIAIS/Université Toulouse 1, Alain CHEVALIER/ESCP Europe, Philippe DESBRIÈRES/IAE Dijon, Nicole EL KAROUI/École polytechnique, Antoine FRACHOT/Groupe des écoles nationales d économie et statistique (GENES), Edith GINGLINGER/Université Paris-Dauphine, Ulrich HEGE/HEC, Monique JEANBLANC/Université d Evry, Lionel MARTELLINI/Edhec, Patrice PONCET/ Essec, Prof. Flavio PRESSACCO/Facolta di Economia di Udine, Nizar TOUZI/École polytechnique Reading Committee Hervé ALEXANDRE/Université Paris-Dauphine, Franck BANCEL/ESCP Europe, Lorenzo BERGOMI/SG CIB, Bruno-Rolland BERNARD/LVMH, Éric de BODT/ESA Lille, Hubert de la BRUSLERIE/Université Paris I, Gérard CHARREAUX/IAE Dijon, Stéphane CRÉPEY/Université d Évry, Michel DIETSCH/IEP Strasbourg, Patrice FONTAINE/Eurofidai, Jacques HAMON/CEREG-Université Paris-Dauphine, Hélène HARASTY/Lombard Odier Darier Hentsch & Cie, Maria-Laura HARTPENCE/HSBC AM, Hervé LE BIHAN/Banque de France, Frédéric LOBEZ/ESA Lille, Christophe MOUSSU/ESCP Europe, Fabrice PANSARD/CNAM, François QUITTARD-PINON/ISFA Université Lyon 1, Catherine REFAIT-ALEXANDRE/CRESE-Université Franche-Comté, Patrick ROGER/Université Louis-Pasteur Strasbourg, Patrick ROUSSEAU/IAE Aix-en-Provence, Alain SCHATT/IAE Dijon, Éric SEVERIN/OSTL Lille 1, Jacques SIKORAV/BNP Paribas, Grégory TAILLARD/HSBC AM. 18 rue La Fayette Paris According to French Law (loi du 11 mars 1957 sur la propriété artistique et littéraire) no part of Bankers, Markets & Investors articles may be reproduced in any form or by any means without prior written permission of Revue Banque SARL. Managing Director : Valérie Ohannessian General Secretary : Élisabeth Coulomb Subediting : Alain de Seze (54 17) ; Christine Hauvette (54 10); Emmanuel Gonzalez (54 12) ; Alexandra Démétriadis (54 18) and DESK Subscription : NPAI - REVUE BANQUE 39 rue Marcelin Berthelot Drancy Cedex Tel. : Fax : revue-banque.abo@npai.fr CPPAP n 0613 T printer : SPEI (Pulnoy, France) Copyright deposit 3 rd quarter Bankers, Markets & Investors 2 bankers, markets & investors n 120 september-october 2012

4 Abstracts Refinancing and Shareholder Value: Covered Bond Issuances between 2007 and Jérémy Morvan, Christian Cadiou and Nathalie Cotillard, Laboratoire ICI (EA2652), IAE de Bretagne Occidentale Jean Moussavou, Laboratoire ICI (EA2652), ESC Bretagne Brest This paper deals with an event study assessing the influence of covered bond issuance on European banks share prices. Covered bonds are debt securities backed by mortgages. In contrast to CDOs, mortgages remain on the issuer s consolidated balance sheet. We show that successful covered bond issuances have a positive influence on issuers share prices with a three days delay. So, the stock market reacts not to the issuance announcement but to the success of the issuance. Keywords: Covered bonds; Issuance; Event study; Subprime mortgage crisis. JEL codes: G010, G140 Evolution of the US Stock Market Risk Premium in Periods of Crisis 12 Fredj Jawadi, Université d Evry Val d Essonne, Amiens School of Management Mohamed Arouri, EDHEC Business school We study the evolution of the US stock market risk premium in periods of crisis using a multivariate GARCH-in-Mean model. This topic is particularly interesting as it enables us to learn about investor s strategies and their attitude vis-à-vis of risk within financial crises. To do so, we estimate in a first step a dynamic CAPM. We study, in a second step the structural breaks in the US risk premium. Finally, we explain our results by important facts and economic events. In particular, we provide economic analysis for the different switching regimes and changes characterizing the risk premium dynamics over the last decades. As expected, our findings show that the US risk premium increased significantly during periods of crisis, but interestingly the recent global financial crisis of seems to have induced the most important change in the risk aversion and the risk premium for the US investors. Keywords: US Risk Premium; CAPM; Multivariate GARCH; Structural Breaks. JEL codes: G15, F36, C32 Investors Expectations and Preferences during the Financial Crisis and the Bursting Internet Bubble: Evidence from the Options Markets 20 Wan Ni Lai, Euromed Management Efficiency in Islamic and Conventional Banks: A Comparative Analysis in the MENA Region 36 Amel Belanes, Faculty of Economics and Management of Nabeul, University of Carthage Sarra Hassiki, High Institute of Management of Tunis, University of Tunis 1 The present study investigates the efficiency of Islamic and conventional banks belonging to the MENA region around the last subprime crisis. The efficiency estimates of individual banks are first evaluated by using the Data Envelopment Analysis (DEA) approach. The analysis further links the variation in calculated efficiencies to a set of explanatory variables, namely the bank profitability, liquidity, risk, size and corporate governance. The empirical findings clearly bring forth the high degree of inefficiency of both Islamic and conventional banks of the MENA region. But above all, Islamic banks were slightly more efficient than their conventional counterparts before the crisis but the trend was inversed afterwards. The regression results focusing on bank efficiency and other bank specific traits suggest that conventional banks efficiency is negatively related to the bank economic profitability and size but positively with liquidity, leverage and the provisions on loans. However Islamic banks efficiency is only and positively influenced by the liquidity. Besides, the government ownership and the manager ownership respectively improve and decrease the Islamic banks efficiency; what is far different for conventional banks. Finally, the duality of the manager enhances the efficiency of both banks. Keywords: Islamic Banks; conventional Banks; Bank efficiency; DEA method; MENA region. JEL codes: G21; G28 FOCUS ON Corporate Governance of Banks and Risk Management by Stockholders 50 Jerome Maati, Université de Lille Nord de France LEM Christine Maati-Sauvez, Université de Lille Nord de France IDP This paper reviews previous and current research on corporate governance in the banking sector through mechanisms in the hands of the shareholders. This is a potentially rich area for research, because of the interplay between governance that is desirable for bank shareholders and governance that is desirable for the regulator. It is difficult to conclude that governance rules for nonfinancial firms are also appropriate for banks, and major improvements are still expected regarding the influence of laws and regulations on bank governance. Keywords: Corporate governance; Bank; Literature review; Risk-taking; Regulatory mechanisms; Ownership structure; Capital structure; Board of directors; Internal control. JEL: G28, G34 This paper examines how the investors expectations of the stock market evolve over the ten-year period from 1999 to In the past decade, the U.S. stock market experienced two major crises, with a relatively steady growth period in between. Using options implied risk neutral distributions to proxy for investors expectations, the time series of the implied risk neutral distributions of the sector returns (Nasdaq 100 and SPDR Financial ETFs), and the broad base index returns (S&P 500 index) are extracted and examined. It is found that in general, investors perception of the volatility and tail risks of stock returns are higher during the two crises. In addition, it also shows that the tail risk dependency between the sector and broad market returns only increases during the financial crisis, implying that the impact of the financial crisis is more severe than the bursting of the Internet bubble. Keywords: Financial Crises, Investment Decisions, Contingent Pricing. JEL codes: G01, G11, G13 bankers, markets & investors n 120 september-october

5 REFINANCING AND SHAREHOLDER VALUE: COVERED BOND ISSUANCES BETWEEN 2007 AND 2010 Refinancing and Shareholder Value: Covered Bond Issuances between 2007 and 2010 JÉRÉMY MORVAN* CHRISTIAN CADIOU NATHALIE COTILLARD Laboratoire ICI (EA2652) IAE de Bretagne Occidentale JEAN MOUSSAVOU Laboratoire ICI (EA2652) ESC Bretagne Brest The subprime mortgage crisis caused refinancing difficulties and increased the financial institutions credit risk. In response to these difficulties, the banking sector used a wide variety of financial solutions aimed at refinancing or strengthening equity. A number of financial securities regained interest in the eyes of investors. The number of covered bonds issuances leapt up. So, the aim of this paper is to assess the influence of these issuances on the share prices of European financial sector during the period. In the first part, we present covered bonds and explain their attractiveness according to the pecking order theory, within the context of restricted market liquidity owing to a high level of risk aversion. We also present the methodological choices of the event study. In the second part of this paper, we present the results and our comments. I. Covered bonds: definition and theoretical point of view From 2007 on, covered bonds regained attractiveness on the financial markets (ECBC, 2010). I.1. WHAT ARE COVERED BONDS? Covered bonds are senior debt securities generally issued by European financial institutions. These low-risk securities are often rated AAA. On the one hand, they are typical of senior debt: in the event of default, investors have priority over the subordinated debt securities holders. On the other hand, covered bonds are backed by a cover pool. In the event of default, investors have priority over these assets. The mechanism therefore delivers double recourse: a recourse against the issuer and a recourse against the underlying assets. The pledge to deliver the assets can be contractual in the case of structured covered bonds or legal in the case of regulated covered bonds. The following diagram presents the financial mechanism of covered bonds. * jeremy.morvan@univ-brest.fr To issue covered bonds, banks needs to hold high-quality assets as cover. This cover has two objectives: the first is the refinancing of mortgages; the second is value creation for stockholders by minimising the cost of capital, as the cover allows for a reduction of the risk premium. Covered bonds are often compared to deconsolidating financial securities such as CDOs (ECB, 2008). Indeed, CDOs and covered bonds are similar in many ways: both of them are backed by mortgages and both of them are bonds with enhancement. The table below compares covered bonds to CDOs. There are many differences between covered bonds and CDOs. The first difference relates to debt servicing. In the case of covered bonds, debt servicing is paid by operating activities of the issuer. For CDOs, debt servicing is paid by the mortgages. The cover pool that secures the bond is only activated in the event of default. The second difference relates to the quality of the cover. Covered bonds guarantees are composed of a pool of high-quality debts. These are home loans and public sector loans. The cover pool is dynamically managed by the issuer during the entire maturity of the covered bonds. The objective is to always maintain the quality of the cover, which is regularly monitored by external auditors. Therefore, in the case of default event, the issuer must make up the value of the cover pool. A third difference is that cover pool remains on the issuer s balance sheet. A dedicated subsidiary is responsible for holding the cover pool. So, in contrast to securitization, the issuer, as the originator, must monitor its loan offer as the credit risk remains on its balance sheet (Loutskina and Strahan, 2009). Covered bonds do not therefore enable the originator to offload the credit risk on the financial markets. A fourth difference is the simplicity of the subsidiary s balance sheet. The liabilities are made up of equity capital stemming almost exclusively from the financial institution from which the mortgage debt and covered bonds originate. Thus the banking group has an exclusive control over the subsidiary. The mortgages are homogenous, made up of real estate loans provided as cover. The estimation of the level of risk is easier. So, covered bonds are low-risk debt for investors and low-cost for issuers. 4 Bankers, Markets & Investors nº 120 september-october 2012

6 September-October 2010 ISSN euros revue-banque.fr Alexis GUYOT, Euromed Management Abraham LIOUI, EDHEC Business School and EDHEC Risk Institute Samir ABDERRAzEk SRAIRI, king Saud University Anton GRAnIk, Reims Management School Philippe ROzIn, Université de nanterre and IAE de Lille Edith GInGLInGER, Université Paris-Dauphine William MEGGInSOn, University of Oklahoma Presse Séminaires Édition Librairie Internet In partnership with association française de finance Bankers, Markets & Investors ABONNEMENTS 2012 Je choisis l abonnement à BANKERS, MARKETS & INVESTORS coché ci-dessous : DÉCOUVERTE 1 MOIS : 1 n o + accès online France (TTC) Étranger Quantité Total Offre réservée non renouvelable 70,00 75, AN : 6 n os + accès online France (TTC) Étranger Quantité Total Institutionnel (adresse professionnelle) 615,00 640, Individuel (adresse privée) 310,00 330, ANS : 12 n os + accès online France (TTC) Étranger Quantité Total Institutionnel (adresse professionnelle) 960,00 990, Individuel (adresse privée) 490,00 525, LA BIBLIOTHÈQUE NUMÉRIQUE (1) France (TTC) Quantité Total Abonnement annuel Tarif unitaire 165,00... Abonnement groupé Tarif de 2 à 5 125, (1) Réservé aux abonnés à une des revues du groupe. TOTAL (TVA : 2,10 % incluse sur le tarif France) BANKERS, MARKETS & INVESTORS Cahier de recherche financière appliquée 150,00 le numéro n 108 Bankers, markets investors an academic and professionnal review articles 4 the impact of Ownership structure and control mechanisms on transaction costs: an empirical study of Firms listed on the euronext Paris stock exchange for the Period between 2004 and the impact of the 2008 short sale Ban on stock returns 31 efficiency of the saudi Banking sector: a Data envelopment analysis approach 47 Financial News and Volatility of Underlying securities in the Pharmaceutical sector FOcUs ON 56 the evidence On Privatization around the World Société... Nom... Prénom... Fonction... Service... Adresse... Code postal/ville...pays... Code TVA (pour les pays de la CEE)... Téléphone...Télécopie... (indispensable)... En application de la loi du 6 janvier 1978, les informations ci-dessus sont indispensables au traitement de votre commande et sont communiquées aux destinataires aptes à les traiter. Elles peuvent donner lieu à l exercice du droit d accès et de rectification auprès de Revue Banque. Vous pouvez vous opposer à ce que vos nom et adresse soient cédés ultérieurement en le demandant par écrit au secrétariat général de Revue Banque. à retourner au SERVICE ABONNEMENTS REVUE BANQUE NPAI 39 rue Marcelin Berthelot DRANCY CEDEX Tél.: Fax : revue-banque.abo@npai.fr Règlement à l ordre de La Revue Banque par chèque par carte bancaire* n Date limite de validité : _ / _ Notez les 3 derniers chiffres du cryptogramme visuel (au verso de votre carte) : _ * Sauf American Express et Diner s Club. Le règlement sur l étranger est à joindre impérativement à la commande et doit être effectué en euros, par chèque payable en France, net de frais. Pour les virements bancaires et CCP, nous consulter. DATE et SIGNATURE BMI12 Vos abonnements se poursuivent on line sur revue-banque.fr Feuilletage, accès illimité aux archives de Bankers, Markets & Investors À SAVOIR > Bénéficiez du CIR (Crédit d Impôt Recherche) pour financer votre abonnement. Nos contenus indispensables à la recherche et au développement ouvrent droit au CIR. + d infos sur revue-banque.fr