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报告摘要

SGCIB Summary on CEBS's CP27: Implementation Guidelines on Hybrid Capital Instruments

Executive Summary

SGCIB, the investment banking arm of Société Générale, welcomes the CEBS consultation on hybrid capital instruments. The firm supports the CEBS process and emphasizes the importance of stakeholder engagement in ensuring a stable and convergent regulatory framework. Below are the key areas where SGCIB suggests further clarification or modification to the guidelines.

1. Permanence / Incentive to Redeem

1.1. Clarity of Incentive to Redeem Guidelines

The guidelines are generally clear and aligned with the 1998 Sydney Press Release.
SGCIB recommends clarifying the step-up calculation wording to avoid confusion.
Incentives to redeem, such as coupon step-ups, should be evaluated at the issue date, not based on random changes in benchmark costs.
Instruments with "a posteriori" incentives should not be limited to 15% of Tier 1 capital.

1.2. Impact of a Cap of 150% on Stock Settlement of Conversion Ratio

A cap on dilution is well understood but not appropriate for inclusion in the regulatory framework.
SGCIB believes that existing regulatory agreements are sufficient to avoid cash consumption and capital ratio reduction.
Regulators should not need to incentivize shareholders by offering them protection.

2. Permanence / Buybacks

2.1. Clarity of Buyback Guidelines

The guidelines are clear but stringent.
SGCIB suggests that the market already provides sufficient comfort through self-regulation, particularly for fixed-income investors seeking fixed time horizons.

2.2. Buyback Cases

2.2.1. Impact of Restricting Buybacks Before Five Years

SGCIB proposes two amendments to paragraph 72:
- Tier 1 hybrids can be bought back at any time, as they are treated similarly to common equity.
- Institutions may replace the instrument with capital of at least the same or better quality before five years, provided it is issued via an exchange offer.

2.2.2. Prudential Justification for Early Buybacks

Early buybacks may be justified if the original reasons for issuing the hybrid (e.g., cost of capital, regulatory recognition, tax considerations) become obsolete.
These reasons are not limited to current market conditions.

2.2.3. Criteria to Avoid Incentives to Deplete Capital

Criteria should be provided in the initial documentation to allow early redemption without compromising capital base.
Substitution clauses can help maintain the original qualities of the capital instrument.
Regulators should be ready to discuss on a case-by-case basis for unforeseen situations.

2.3. Impact of Limiting Repurchased Instruments to 5% of Issuance

SGCIB believes that a 10% limit is more appropriate for market-making purposes.
The current 5% limit may be too restrictive and not reflective of actual market practices.

3. Flexibility of Payments

3.1. Clarity of Dividend Pusher/Stopper Guidelines

The guidelines are clear.
SGCIB recommends that the dividend pusher should not be activated when dividends are paid exclusively in shares.

3.2. Impact of Restriction on Dividend Pusher/Stopper

SGCIB accepts the restriction but notes that such mechanisms should not hinder recapitalisation.
The firm supports the idea that dividend pushers and stoppers should not be used to manipulate capital structures.

4. Flexibility of Payments / ACSM

4.1. Clarity of ACSM Guidelines

The proposal is clear, but SGCIB is concerned about investor reaction.
Fixed-income investors may not be willing to hold equity in ACSM mechanisms, as they are not designed for equity investment.

4.2. Impact of ACSM Implementation

Widespread use of ACSM across the EU could enhance investor confidence in shareholder participation in bank solvency.
SGCIB supports the principles but highlights the need for alignment with European laws regarding share issuance and investor treatment.

5. Loss Absorbency

5.1. Clarity of Loss Absorbency Definition

The guidelines are clear.

5.2. Agreement with Loss Absorbency Definition

SGCIB agrees with the definition of loss absorbency in going concern.

5.3. Flexibility for Loss Absorbency Mechanisms

The guidelines may lead to improper accounting if certain instruments are converted into equity.
SGCIB proposes that mechanisms should reflect a strong solvency and accounting situation, such as consecutive periods of profits.
The flexibility does not raise level playing field issues, as it allows for appropriate risk management.

5.4. Transparency of Subordination Levels

Different levels of subordination are sufficient to demonstrate the ability of hybrid instruments to cover losses in liquidation.
SGCIB does not recommend completely precluding different rankings among hybrids, as standard subordination definitions are appropriate.

6. Limits

6.1. Clarity of Hybrid Classification Limits

The proposed wording is clear.

6.2. Proportionality of Mandatory Convertible Conditions

SGCIB believes that instruments which must convert into shares with certainty should be classified as Core Tier 1, not Tier 1 hybrids.
These instruments are not redeemable in cash, and only equity investors would be interested in them.
SGCIB suggests that such instruments should be accounted for as Core Tier 1 and not subject to quantitative limits.