HALISTER1: English Law May Cause ‘Headaches’ for Bank Bonds: Morgan Stanley

English Law May Cause ‘Headaches’ for Bank Bonds: Morgan Stanley

(Bloomberg) -- English law, the preferred framework for banks issuing regulatory capital, may be less attractive after Brexit when the U.K. becomes a “third country” for the EU, Morgan Stanley analysts say in note to clients.
  • Current EU law requires bonds issued to fulfill MREL requirements must either be governed by the law of a member state or contain contractual recognition of local bail-in power; requirement likely to be extended to other regulatory capital issuance
  • “Significant amount” of regulatory capital issued under English law without bail-in clauses
  • Much depends on the outcome of exit negotiations but:
    • “Fair to assume” bonds under English law will begin to get replaced, near-term calls more likely
    • If English law bonds derecognized “we expect grandfathering” of at least 5 yrs, possibly 10
    • Time will be needed because base documentation is still in English law for many issuers
    • Issuers unlikely to make significant moves until there is certainty on Brexit negotiations
  • Authors are Greg Case, Jackie Ineke

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Greg Case (Morgan Stanley & Co International PLC)
Jackie Ineke (Morgan Stanley)

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