12.8.1.2 Limitation of the coupon and dividend ban

The scope of the coupon and dividend ban is not unlimited. Indeed, there are three limitations of the coupon and dividend ban. Firstly, the coupon and dividend ban does not apply to newly issued securities. In that regard, it should be noted that a coupon and dividend ban may compromise the bank’s ability to raise fresh capital on the market. The Commission therefore accepts that the coupon and dividend ban does not apply to newly issued securities, provided any payment of coupons on such newly issued capital instruments will not create a legal obligation to make any coupon payments on the bank’s existing securities.1 This is explicitly recognised in point 26 of the Restructuring Communication.2

Secondly, the coupon and dividend ban does not apply to securities where the bank has no discretion to suspend coupon payment. The case of Ethias is a nice illustration of this limitation. In this case, the Commission noted that the hybrids issued by Ethias were not loss absorbing on a going concern basis. In particular Ethias had no discretion to suspend coupon payment. The possibility of coupons deferral was conditional on the inability of Ethias to meet solvency requirements in view of its annual audited accounts. As this condition has not been fulfilled during the period since the aid measure was announced, Ethias has not had discretion to defer coupon payments on its hybrids. As a result, the criterion of burden sharing does not require Ethias to refrain from payments of coupon payments on its hybrid instruments.3

Thirdly, point 26 of the Restructuring Communication provides that a bank should not use State aid to pay compensation for own resources if there are insufficient profits. This implies that when a beneficiary bank makes profit, coupon payments may be made again. For example, in the case of LBBW, Germany had committed that financial instruments would only be serviced in the next three years if no appropriation of reserves was necessary for this. The Commission considered that this ensured that compensation for own resources would only be made in the event of sufficient profits and that no State aid would be used for payments to shareholders.4