2016年-EBA欧洲银行管理局_AT1_Report_October_2016_16页_376kb

EBA Report on Monitoring Additional Tier 1 (AT1) Instruments: Summary

Core Content

This report is the second update of the EBA's monitoring of AT1 instruments issued by EU institutions, published in October 2014. It aims to inform external stakeholders about the EBA's ongoing monitoring activities and the results thereof. The report reviews 33 AT1 issuances, totaling EUR 35.5 billion, between August 2013 and December 2015, with eleven using a conversion mechanism and twenty-two using a write-down mechanism.

The EBA emphasizes the importance of standardization and clarity in the terms and conditions of AT1 instruments to reduce complexity and ensure prudential soundness. It also highlights the need to align the wording of the instruments with the regulatory technical standards (RTS) and the Capital Requirements Regulation (CRR).

Main Views and Key Recommendations

• Regulatory Calls:

  • Only full regulatory calls are acceptable.
  • Partial calls should not be considered as eligible triggers for regulatory or tax calls.
  • Tax calls should be based on a material and non-foreseeable change in tax treatment, not on speculative risks.
  • The trigger for tax calls should be clearly defined and aligned with Article 78(4)(b) of the CRR.

• Redemptions and Repurchases:

  • Redemption notices should not be revoked after a trigger event notice has been issued.
  • Provisions that allow redemption after a trigger event should be avoided.
  • Purchases of AT1 instruments are not possible at any time and are subject to specific limits.
  • References to Liability Management Exercises (LMEs) and associated Q&A's should be omitted, while market making is acceptable.

• Event of Default:

  • Provisions that define non-payment of any amount as an event of default should be avoided.
  • The EBA recommends that terms clearly state that non-payment does not constitute an event of default.

• Tax Gross-Up Clauses:

  • Gross-up clauses should be activated by the local tax authority, not the investor.
  • Increased payments should not exceed distributable items.
  • Gross-up is only allowed for dividend/coupon withholding tax, not for principal.
  • Changes in withholding tax must result in an increase in the cost of the issuance for the institution to be considered a material event.

• Write-Down or Conversion:

  • The one-cent floor for write-downs is problematic and should be avoided.
  • If a one-cent floor is used, it must not be included in CET1 capital.
  • The EBA supports the use of a permanent write-down clause in case of conversion failure, provided it does not contradict Article 54(6) of the CRR.
  • Provisions should not imply that a write-down notice is a precondition for the loss absorption mechanism.
  • The calculation for write-up must follow the RTS formula and definition of 'profit'.

• Interaction with Other Instruments:

  • Provisions should not link the write-up or loss absorption of AT1 instruments to other instruments.
  • It is advisable to specify the interaction between AT1 and Tier 2 instruments to provide clarity to holders.

• Pre-emption Rights:

  • Pre-emption rights for shareholders are acceptable if they do not undermine the loss absorption mechanism.
  • The EBA acknowledges the potential benefits but maintains its initial reservations, emphasizing the need for simplicity.

• Contingent Clauses:

  • Contingent clauses that make interest payments mandatory upon loss of AT1 status are not acceptable.
  • These clauses introduce complexity and may lead to unintended consequences, including constraints on regulatory changes.
  • The EBA recommends against the use of contingent clauses in the terms and conditions of EU issuances.

• Formal Issues:

  • Prudential provisions should not be written in italics or with ambiguous language.
  • The wording should be clear and avoid references to 'applicable law' or 'banking rules' when the provisions are already derived from the CRR or RTS.
  • The trigger event should be defined clearly and explicitly, allowing for calculation at any time.

• Provisions for Future Issuances:

  • The EBA advises against provisions that allow the trigger level to be increased at any time, as this could be seen as a new issuance.
  • The EBA is also monitoring the potential use of contingent conversion convertibles, which include upside conversion options for investors.
  • The EBA is cautious about such instruments and emphasizes the need for simplicity in terms and conditions.

Conclusion

The EBA continues to monitor the quality of AT1 instruments and recommends avoiding or revising certain provisions to ensure clarity, simplicity, and prudential soundness. It encourages the use of standardized templates and highlights the importance of aligning terms with the CRR and RTS. The report also serves as a foundation for future regulatory developments and provides guidance for market participants and institutions.