12.8.1.1 Duration of the coupon and dividend ban

As a general rule, the coupon and dividend ban applies throughout the restructuring period.1 It is sometimes stipulated that the coupon and dividend will cease to apply when the State’s shareholding in the bank has been fully divested. For instance, the coupon ban in the case of CCB/CCI was applied for the entire period during which Cyprus participated in the ownership structure of the CCB.2

In some cases, the duration of the coupon ban is conditional upon the fulfilment of the LME. For instance, one of the commitments in the case of Banco CEISS was that “until the burden sharing measures provided for in section 7 of this Term Sheet will have been implemented BANCO CEISS will not make any payments to holders of preference shares and subordinated debt instruments in so far as those payments are not owed on the basis of a contract or the law.” The burden-sharing measures mentioned in this commitment relate to the LME. The same commitment can be found in other Spanish cases, such as NCG, BFA Bankia, Catalunya Banc, Banco Mare Nostrum and Liberbank.

Also in the W-context, the duration of the coupon and dividend ban is related to the fulfilment of the burden-sharing measures. For instance, in the case of Probanka, the burden-sharing measures entailed that the shareholders and subordinated debt holders would be fully wiped out.3 The coupon and dividend ban entailed that Probanka would not make any dividend and coupon payments until the burden-sharing measures have been fully implemented.4

Sometimes, the duration of the dividend/coupon ban is determined by specific circumstances. For instance, in the case of ABN AMRO, the Commission considered that in approximately two years’ time, ABN AMRO Group should have restored its viability. Against that background, a hybrid coupon and hybrid call ban of 2 years seemed to provide appropriate burden-sharing from the bank’s capital holders.5

The coupon ban in the case of Bank of Ireland applied from 1 February 2010 to 31 January 2011. The final date had a specific reason: on 31 January 2011, Bank of Ireland had to pay a coupon to the State on the State’s remaining preference shares. The Commission accepted that the coupon ban could not be extended further without endangering the capital raising exercise, as outside investors would not accept further dilution as would occur if the coupon on the government preference shares were to be paid in common stock again.6

The dividend ban in the case of NordLB had a special feature: if the contingent asset guarantee was activated, the duration of the dividend ban would be extended for two years. The Commission noted that this ensured an incentive structure for limiting the aid to the minimum.7

To recapitulate, the duration of the coupon and dividend ban can be: i) equal to the restructuring period; ii) related to the fulfilment of the burden-sharing measures; or iii) determined by specific circumstances.