HALISTER1: ECB’s Bank-Capital Position Is Credit Positive for AT1s: Moody’s

ECB’s Bank-Capital Position Is Credit Positive for AT1s: Moody’s

(Bloomberg) -- Ignazio Angeloni’s confirmation that the ECB’s SREP methodology will allow for splitting Pillar II capital expectations into requirements and guidance is credit positive for holders of additional Tier 1 bonds, Moody’s says in its Credit Outlook.
  • Only binding requirement would constrain the distribution of dividends and coupons, making risk of suspension of interest on AT1s more remote
  • Results of stress tests to inform guidance part, therefore not relevant in capping amount that banks can distribute
  • Banks can absorb shocks by eating into guidance component
  • Change is “particularly positive” for banks that currently have low headroom above capital buffers, incl. UniCredit SpA, BNP Paribas SA, Deutsche Bank AG, Moody’s says
  • Change broadly positive for bank credit “because it potentially reduces any pressure on the ECB to moderate the level of capital guidance to avoid any unintended consequences of an AT1 coupon suspension”
  • Still unclear how much binding requirement will fall
  • Still unclear “ whether and how the supervisory guidance component will be disclosed under the new approach. Any reduction in disclosures would negatively affect creditors’ ability to understand euro area banks’ complex capital architectures and fully assess their risks”
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)
UCG IM (UniCredit SpA)
BNP FP (BNP Paribas SA)
DBK GR (Deutsche Bank AG)

People
Ignazio Angeloni (European Central Bank)

Topics
Subordinated Debt

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