The adventures in banks’ hybrid Tier 1 debt continue apace this Wednesday morning, via Belgium’s KBC.
From a Tuesday press release issued by the partially state-owned bancassurer:
1 September, 2009 – 5.45 p.m.
Having issued core capital securities to the State in order to strengthen its solvency level, KBC’s plan analysing the group’s business and proposed future strategy now needs to gain clearance from the European Commission. On 6 August, KBC communicated that KBC was advised by the European Commission to refrain from paying ‘non-mandatory coupons’ on its perpetual subordinated hybrid Tier-1 securities until the end of the year.
The impact of this restriction on one of the perpetual subordinated hybrid Tier-1 securities – the KBC Bank Funding Trust II securities – remained uncertain at that time, while the coupon payment in respect of another such security – the KBC Bank GBP security – was deemed to be non-mandatory. KBC can now confirm that the coupon payments on the following instruments can be qualified as being ‘mandatory’ and that, as a consequence, KBC has the intention to pay on the dates indicated below.
XS0099124793 KBC Bank Funding Trust II 280m EUR 3m EURIBOR +3% 30-Sep-09
XS0099124793 KBC Bank Funding Trust II 280m EUR 3m EURIBOR +3% 31-Dec-09
US48239AAA79 KBC Bank Funding Trust III 600m USD 9.86% 02-Nov-09
USU2445TAA08 KBC Bank Funding Trust IV 300m EUR 8.22% 10-Nov-09
BE0119284710 KBC Bank 525m GBP 6.202% 19-Dec-09
The current brouhaha in Tier 1 bonds, which help make up banks’ regulatory capital, stems from the European Commission’s intentions to force bondholders to share some of the pain of government bank bailouts. Thus, the Commission has been leaning on bailed-out banks to halt coupon payments on the bonds where legally able.
Et voilà, you get press releases like the above from KBC.
Interestingly, however, KBC shares were down about 6.6 per cent in early morning trading on Wednesday. From Reuters:
Shares in Belgian bancassurer KBC (KBC.BR) drop up to 6.6 percent to 23.58 euros after the group says it will pay coupons on outstanding KBC hybrid Tier-1 issues as the coupon payments can be qualified as being “mandatory”.
“KBC is aiming to pay back the government aid it received. This is cash that is leaving the company, so that could be weighing on the stock” Bank Degroof analyst Ivan Lathouders says.
He adds that the drop must also been seen in light of wider falls in the banking industry, with the DJ STOXX European banking index .SX7P down 1.47 percent.
Which means, bailed-out banks may now be in a rather difficult position; Either they upset their bondholders by not paying coupons on their Tier 1 debt, potentially endangering a future source of capital, or they make the payments and now, seemingly, risk the ire of their shareholders for leaking cash.
Europe’s bailed-out banks, we do not envy thee.
Related links:
Hybrid heroes and villains – FT Alphaville
Hybrid security (or not) - FT Alphaville
Deutsche bonds with the retail investor – FT Alphaville