Halister News

(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