Look like I don't understand why you people don't invest in bank capital legacy bonds. It's very simple.
For example you get this discounted bond. It was Basel 2 tier 1 capital and has been grandfathered as CRR Additional Tier 1 capital. So the bank will keep it until 2021.
For example you get this discounted bond. It was Basel 2 tier 1 capital and has been grandfathered as CRR Additional Tier 1 capital. So the bank will keep it until 2021.
But post CRR1 grandfathering period in 2021 it will be eligible as Tier 2 capital so the bank might keep it longer.
However under the new CRR2 it might lack a waiver of set off rights which would eliminate it from Tier 2. But that would only be in 2025
However under the new CRR2 it might lack a waiver of set off rights which would eliminate it from Tier 2. But that would only be in 2025
Meanwhile, as a Tier 2 it would lead to infection risk because under article 56 CRR as a Tier 2 it cannot be pari passu to Additional Tier 1 - which it is because it was issued as a Tier 1.
However, since it was issued at an intermediate holdco level of a multiple point of entry
However, since it was issued at an intermediate holdco level of a multiple point of entry
Resolution group, it could be lacking AT1 securities, hence removing infection risk.
Post 2025 there is of course the question of MREL eligibility. On the face of it it could work, as its coupon derivative is eligible, but the fact that it is issued under US law might cause pbms
Post 2025 there is of course the question of MREL eligibility. On the face of it it could work, as its coupon derivative is eligible, but the fact that it is issued under US law might cause pbms
True, Article 72a does not disqualify US law bonds, but the resolution authorities could decide that it still constitute an impediment to resolution. Within a multiple point of entry group, the home and host authorities might have a different view on this
In any case, as MREL or non MREL application of article 78.4 could disqualify others capital bonds of the bank because they would have to be subordinated to this bond - which they are not since it was a Tier 1 bond.
This being said, the home country has decided to implement BRRD2 by not changing the liquidation hierarchy for bonds issued after 2021 , but chose to ignore article 78.4. So the infection risk remain to be clarified in a further Pillar 3 statement.
(Thoughts and prayers for geek analysts worldwide explaining this to their PM/traders @subfincredit )
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