EBA sides with UniCredit on
CASHES capital treatment
Rules no breach of EU law
UNICREDIT subordinated bonds held steady
FOLLOWINGûTHEû%UROPEANû"ANKINGû!UTHORITYSû
assessment that certain instruments known
ASû#!3(%3ûQUALIFYûASû#OMMONû%QUITYû4IERû û
despite hedge fund Caius Capital arguing to
the contrary.
4HEû%"!ûHADûSAIDûTHATûTHEREûHADûBEENûNOû
breach of European Union law in counting
THEûõBNûOFûNOTESûASû#%4û4HEREFORE ûITû
WOULDûNOTûOPENûAûSPECIlCûINVESTIGATIONûINTOû
the matter. The regulator is carrying out a
WIDERûREVIEWûOFûCRISIS
ERAûINSTRUMENTS
h7HILEûTHEûALLEGEDûBREACHûCOULDûHAVEûAû
SIGNIlCANT ûDIRECTûIMPACTûONûTHEû%"!Sû
OBJECTIVES ûINûPARTICULARûASûREGARDSûACHIEVINGûAû
SOUND ûEFFECTIVEûANDûCONSISTENTûLEVELûOFû
REGULATIONûANDûSUPERVISIONûxûTHEû%"!û0ROCEDUREû
sets out some important factors which weigh
AGAINSTûTHEûCOMMENCEMENTûOFûANûINVESTIGATION vû
it wrote in a letter to Caius Capital.
5NI#REDITSû!DDITIONALû4IERûûBONDSûBARELYû
MOVEDûONû-ONDAYûMORNING ûTHEûlRSTûDAYûOFû
TRADINGûAFTERûTHEû%"!ûPUBLISHEDûITSûLETTERû
4HEûõBNûûPERPETUALû.#S ûFORû
EXAMPLE ûWEREûTRADINGûINûLINEûTOûAûTOUCHû
HIGHERûINûCASHûTERMSûATû ûACCORDINGûTOû
Thomson Reuters data.
(OWEVER û#AIUSû#APITAL ûWHICHûFOCUSESûONû
DISTRESSEDûANDûSPECIALûSITUATIONS ûSAIDûINûAû
response it remains resolute that the
#!3(%3ûTRANSACTIONûFAILSûTOûCOMPLYûWITHû
important aspects of the Capital
Requirements Regulation. It has taken a
TRADINGûPOSITIONûTHATûWILLûBEûPROlTABLEûINûTHEû
EVENTûTHATûTHEû#!3(%3ûFALLûINûVALUE
“This decision is disappointing and has far-
REACHINGûIMPLICATIONS ûLEAVINGûSTAKEHOLDERSû
in European banks facing continued
UNCERTAINTY vûITûSAIDûINûAûSTATEMENT
4HEû%"!ûSAIDûITûHADûBASEDûITSûASSESSMENTû
OFûTHEû#!3(%3ûPLACEûINû5NI#REDITSûCAPITALû
STRUCTUREûINûûhONûAûONE
OFFûBASISv û
ARGUINGûTHATûTHEûBULKûOFûTHEûINSTRUMENTS û
ISSUEDûINû ûCOULDûNOTûBEûDISTINGUISHEDû
FROMûORDINARYûRESERVESûWHENûASSESSINGûTHEû
bank’s share premium under Italian law.
#AIUSûBELIEVESûTHATûTHEûTREATMENTûOFûTHEû
#!3(%3ûUNDERMINESûTHEû%UROPEANûLEVELû
PLAYINGûlELDûANDûRISKSûWEAKENINGûTHEû
PERCEIVEDûQUALITYûOFû#%4ûACROSSûTHEû
European Union.
)TûSAIDûTHEû%"!ûHADûNOTûCLEARLYûINDICATEDûIFû
it had reassessed the instruments’ position
in the light of the implementation of CRR in
2014.
“The pre-CRR treatment is therefore only
OFûLIMITEDûRELEVANCEûTOûELIGIBILITYûTODAY vû
WROTEû#AIUSûINûAûLETTERûTOûTHEû%"!ûRESPONDINGû
to its statement.
4HEûHEDGEûFUNDûAPPROACHEDûTHEû%"!ûINû
-AY ûLOBBYINGûFORûAûFORMALûINVESTIGATIONûINTOû
whether the ECB and the Bank of Italy
BREACHEDû%5ûLAWûBECAUSEûOFûTHEû#!3(%3û
#%4ûCLASSIlCATION
)TûALSOûARGUEDûTHATûTHEûEXISTENCEûOFûTHEû
#!3(%3ûRENDERSûALLûOFû5NI#REDITSûORDINARYû
SHARESûINELIGIBLEûASû#%4û!CCORDINGûTOûITSû
ANALYSIS ûTHATûWOULDûLEAVEûONEûOFû%UROPESû
largest banks grossly undercapitalised with a
#%4ûRATIOûOFûLESSûTHANû
Caius successfully forced West Bromwich
Building Society to clean up legacy hybrid
securities last year on the grounds that these
too were ineligible as CET1.
$ESPITEûITSûSETBACKûINûTHEûCASEûOFû5NI#REDIT û
THEûFUNDûNOTESûTHEû%"!SûACKNOWLEDGEMENTû
that the issues may be dealt with more
properly by other bodies or means.
“We look forward to pursuing these in
ORDERûTOûBRINGûTHEûQUESTIONûOFûTHEû#!3(%3û
ELIGIBILITYûTOûAûCLOSEûANDûTOûRESOLVEûLINGERINGû
UNCERTAINTYûFORûSTAKEHOLDERS vûITûSAID
5NI#REDITûWELCOMEDûTHEû%"!SûDECISION û
ANDûSAIDûITûHASûNOTIlEDûTHEûCOMPETENTû
market authorities of Caius Capital’s actions
in light of possible market abuse. It is
EVALUATINGûANYûOTHERûRECOURSEûTOûPROTECTûITSû
STAKEHOLDERS ûSHAREHOLDERSûANDûBONDHOLDERS û
it said in a statement.
Caius Capital refuted UniCredit’s
COMPLAINTûh!TûALLûTIMES ûWEûHAVEûCOMPLIEDû
WITHûALLûMARKETûREGULATIONSûANDûHAVEûACTEDû
ENTIRELYûPROPERLY vûITûSAID
4HEûBANKûISSUEDûTHEû#!3(%3û
ûCONVERTIBLEû
and subordinated hybrid equity-linked
SECURITIESû
ûINûûUNDERûAûCAPITALûINCREASE ûITSû
second during the credit crisis. Noteholders
CANûCONVERTûTHEMûINTOû5NI#REDITûSHARES
#AIUSûBELIEVESûTHEû#!3(%3ûSHOULDûRANKû
below the bank’s ordinary shares since
INVESTORSûONLYûRECEIVEûAûCOUPONûIFûAûDIVIDENDûISû
PAIDû)TûBELIEVESûTHISûhCO
MINGLINGvûOFûBOTHûTYPESû
of securities is contrary to CET1 guidelines.
Caius argues that UniCredit should make
USEûOFûAûCLAUSEûINûTHEû#!3(%3ûTHATûWOULDû
ALLOWûTHEMûTOûBEûAUTOMATICALLYûCONVERTEDû
into ordinary shares. That would most likely
result in large losses for holders of the notes.
The hedge fund said it would take no
FURTHERûLEGALûORûREGULATORYûACTION û
UNDERSTANDINGûTHATûTHEû%"!ûISûALREADYû
REVIEWINGûSOMEûINSTRUMENTSûISSUEDûBEFOREûTHEû
new capital rules were introduced in 2014.
Alice Gledhill, Christopher SpinkWEEK IN NUMBERS
1.625pts
THE AMOUNT THAT TESLA’S 5.30%
2025 BONDS FELL BY IN CASH TERMS
ON MONDAY AFTER A REPORT THE
ELECTRIC CAR MAKER HAS TURNED TO
SOME SUPPLIERS FOR A REFUND OF
PREVIOUSLY MADE PAYMENTS IN A BID TO
TURN A PROFIT6
THE NUMBER OF YEARS SINCE
TEMASEK HAD ISSUED A US DOLLAR
BOND BEFORE LAST WEEK’S US$1.35bn
10-YEAR SALE90.50
THE CASH PRICE LEVEL THAT
UNICREDIT’S 5.375% PERP NON-CALL
2025 AT1 BONDS WERE TRADING
AT ON MONDAY – ROUGHLY IN LINE
WITH FRIDAY’S CLOSE – AFTER THE
EBA SIDED WITH THE BANK ON THE
CAPITAL TREATMENT OF ITS CASHES
INSTRUMENTS€575m
THE AMOUNT THE ECB BOUGHT
THROUGH ITS CSPP IN TRADES SETTLED
IN THE WEEK UP TO JULY 20
In total, it has bought €164.698bn85909510010518/12/1718/01/1818/02/1818/03/1818/04/1818/05/1818/06/1818/07/188486889092949602/01/1802/02/1802/03/1802/04/1802/05/1802/06/1802/07/18