20.3 Particular Remarks on Securities Lending 555capital ratio, excluding hybrid capital, of 5.5%-6.0%;^17 a hybrid capital ratio of 1.0%-
1.5%;^18 and a solvency ratio of 9%-10%.^19
The financing mix therefore consisted of three main components: (a) equity issuance
(DKr14.7 billion); (b) tier 1 hybrid issuance; and (c) securitisation of mortgages and corpo-
rate loans.
The share offering was decided on by the board of directors of Danske Bank pursuant to
an authorisation contained in the bank’s articles of association^20 and made to institutional
investors in Denmark and internationally without the application of the pre-emption rights
of existing shareholders.^21 The issuance of new equity was executed in November 2006 be-
tween the signing and closing of the acquisition agreement.
In December 2006 and February 2007, Danske Bank issued Hybrid Tier 1 Capital Notes
as part of the financing of the acquisition of Sampo Bank. All Hybrid Tier 1 Capital Notes
were perpetual and subordinated to all ordinary creditors and supplementary capital, senior
only to the share capital. The Bank had the option to call the notes at their outstanding prin-
cipal amount on certain dates. The amounts of the issues were £500 million, €600 million,
and SEK 2 billion.
20.3 Particular Remarks on Securities Lending...........................................
Borrowing shares under a securities lending contract can enable the securities bor-
rower to use voting rights during the term of the contract. This can make it easier
for the acquirer to secure control at the general meeting. The acquirer can thus
benefit from the assets of an “asset investor” (section 9.2) when applying a strat-
egy called “record date capture”.
Record date capture. Record date capture involves borrowing shares in the se-
curities loan market just before the record date and returning the shares immedi-
ately afterwards. Under standard borrowing arrangements, the borrower has no
economic exposure to the company. The borrower contracts with the share lender
to (1) return the shares to the lender at any time at the election of either side, and
(2) pay the lender an amount equal to any dividends or other distributions the bor-
rower receives on the shares. This loan agreement leaves the borrower holding
votes without economic ownership, while the lender has economic ownership
without votes.^22
As regards companies whose shares have been admitted to trading on a regu-
lated market in the EU, record date capture was influenced by the shareholder
(^17) Core capital consists of issued and fully paid common stock and forms tier 1 capital.
Paragraph 49(i) of the Basel II Accord.
(^18) Hybrid debt capital instruments belong to tier 2 capital. Paragraph 49(xi) of the Basel II
Accord. However, some innovative instruments belong to tier 1 capital. Basel Commit-
tee on Banking Supervision, Instruments eligible for inclusion in Tier 1 capital (27 Oc-
tober 1998).
(^19) The main solvency ratio is 8%. See paragraph 40 of the Basel II Accord.
(^20) Article 25(2) of Directive 77/91/EEC (Second Company Law Directive).
(^21) Article 29(5) of Directive 77/91/EEC (Second Company Law Directive).
(^22) Hu HTC, Black BS, Equity and Debt Decoupling and Empty Voting II: Importance and
Extensions, U Penn L R 156 (2008) pp 625–739 at p 641.