EBA欧洲银行-CP17_ISP_5页_129kb

Intesa Sanpaolo Summary of CEBS Draft Proposal on Tier 1 Hybrids

Core Content

Intesa Sanpaolo has provided detailed comments on the CEBS Draft Proposal for a common EU definition of Tier 1 hybrid instruments, dated 7th December 2007. The comments highlight several areas of concern and suggest amendments to align the proposal with local legal environments and to avoid competitive distortions within the EU banking sector.

Main Viewpoints

1. Permanence

• CEBS Proposal: Defines permanence as instruments being contractually undated or callable only under specific conditions.
• Intesa Sanpaolo Comments:
  • Advocates for a "substance over form" approach in defining permanence.
  • Suggests revising the definition to include instruments that are not redeemable before dissolution, winding up, or bankruptcy.
  • Proposes that cash early repayment should only be allowed with regulatory authorization.
  • Emphasizes that the current wording may conflict with local legal frameworks, particularly in countries where undated instruments are not regulated.

2. Loss Absorption

• CEBS Proposal: Requires hybrids to absorb losses by either writing down principal, suspending obligations, or converting into ordinary shares.
• Intesa Sanpaolo Comments:
  • Argues that a clear definition of "loss" is necessary before discussing loss absorption.
  • Believes that the write-down mechanism may not align with the legal definition of "debt instrument" in several EU countries, including Italy, and could affect tax deductibility.
  • Suggests that the write-down should be replaced with a suspension of obligations to avoid market distortions and provide more flexibility.
  • Highlights that the write-down mechanism may not offer additional investor protection and could lead to significant market value discrepancies.

3. Flexibility

• CEBS Proposal: Requires the suspension of interest payments if the institution breaches minimum capital requirements.
• Intesa Sanpaolo Comments:
  • Proposes that interest payments should only be suspended if both the minimum capital requirement is breached and dividends are not paid.
  • Suggests that the suspension of dividends should occur when the Tier 1 ratio falls below 2%.
  • Calls for more clarity on the time window for accepting dividend pushers.

4. Limits to Inclusion into Tier 1

• CEBS Proposal:
  • Sets a 70% minimum for ordinary shares and disclosed reserves in Tier 1.
  • Proposes a 15% limit for instruments with incentive to redeem and those with ACSM features.
• Intesa Sanpaolo Comments:
  • Argues that saving shares should not be classified as hybrid instruments and should be excluded from the limits.
  • Points out the "cliff effect" where a reduction in Tier 1 ratio could cause a portion of existing hybrids to lose eligibility.
  • Advocates for a uniform 50% limit across all EU countries to avoid competitive disadvantage.
  • Believes the 15% limit should apply only to true innovative instruments with a clear incentive to redeem, not to ACSM instruments, which are more about coupon sensitivity.

5. Grandfathering

• CEBS Proposal:
  • Hybrid instruments with an incentive to redeem remain eligible until the first call date.
  • All other hybrids are gradually phased out over 30 years, with a 20% inclusion limit after 10 years, 10% after 20 years, and 0% after 30 years.
  • Redemption must be initiated by the issuer and approved by the supervisor.
• Intesa Sanpaolo Comments:
  • Questions the relevance of distinguishing between hybrid instruments with and without redemption incentives during grandfathering.
  • Notes that if an instrument is not redeemed after a step-up, it may lose its incentive to redeem nature.
  • Suggests that grandfathering should be applied uniformly to all hybrid instruments without such distinctions.

Key Recommendations

• Tier 1 Classification: Split Tier 1 into Core Tier 1 and Hybrids, with separate limits for each category.
• Harmonization: Achieve harmonization across EU countries regarding the composition of Core Tier 1.
• Uniform Limit: Apply a 50% limit on hybrid instruments in all EU countries.
• Incentive to Redeem: The 15% limit should apply only to instruments with a clear incentive to redeem, not to ACSM instruments.
• Avoid Write-Downs: Replace the write-down mechanism with a suspension of obligations to maintain flexibility and avoid market distortions.

Conclusion

Intesa Sanpaolo supports the CEBS proposal for a common EU definition of Tier 1 hybrids but emphasizes the need for amendments to ensure consistency with local legal frameworks, avoid competitive distortions, and provide greater flexibility and investor protection. The bank advocates for a harmonized and fair regulatory approach across the EU.