Annex IX: Burden-sharing by hybrid and subordinated debt holders

Bank

LME

Write-down

Remaining at the bad bank

Coupon ban

OVAGC

LME

Coupon ban

“The Commission further observes that ÖVAG offered to buy hybrid instruments back from private investors at the price corresponding to around 40% of their nominal value. The offered buy-back price was determined on the basis of the market value of the instruments and contained a premium of not more than 10 percentage points, which was added to incentivise investors to participate in the buy-back. The offer was accepted for almost 80% of the instruments’ total nominal value, which after taking the costs of the transaction into consideration left ÖVAG with a profit of EUR 130 million. The still outstanding instruments are subject to the coupon ban explained in recital (117). Therefore, the Commission considers that an ade-quate burden-sharing from ÖVAG’s private hybrid investors is ensured and the requirements of the Restructuring Communication in that respect are met.”1

BAWAGC

Coupon ban

This case is somewhat remarkable, because the dividend/coupon ban seemed to be sufficient burden-sharing.

Hypo TirolC

Coupon ban

“Die Hypo Tirol hat zugesagt, im Falle von Verlusten im operativen Geschäft keine Kuponzahlungen vorzunehmen. Auf diese Weise wird im Einklang mit Randnummer 26 der Umstrukturierungsmitteilung sichergestellt, dass die Bank keine staatlichen Beihilfen zur Zahlung einer Vergütung für Eigenmittel verwendet, wenn die entsprechenden Geschäfte keine ausreichenden Gewinne abwerfen.”2

HGAAS/C/ W

LME

Coupon ban

“As regards the hybrid capital holders, HGAA has taken a number of steps to ensure their burden- sharing by buying back those instruments significantly below par or cancelling them altogether which has generated a significant capital effect.3 Furthermore, the Commission notes that many of the hybrid capital instruments as well as the Partizipationskapital instruments only yield dividends or coupon payments in case of profits. Given the lack of profitability of the bank in recent years, the holders of those instruments have not received such payments. In addition, there will be restrictions on dividend and coupon pay- outs in the future. As a result, the Commission considers that there is sufficient burden-sharing from the holders of those instruments.”4

KA (2011)S/C/W

Remaining at the bad bank

Coupon ban

“Moreover, hybrid issuances (including the participation certificates from the previous owners) have been split between KA Neu and KA Finanz […], thus ensuring additional burden sharing, since the potential profits of KA Finanz will be skimmed off by the guarantee fees to be paid to the state.”5

KBCC

LME

Coupon ban

“Finally, the Commission notes that the Belgian authorities have committed that KBC will not pay coupons or call subordinated debt instruments, except where there is a legal obligation to do so. As a result, subordinated debt holders will receive limited remuneration and thus con-tribute to the restructuring.”6

EthiasC

Coupon ban

“The Commission notes that the holders of hybrid instruments should also bear to the extent possible the losses incurred by Ethias. In this respect, the Commission notes that – as confirmed by the CBFA – the hybrids issued by Ethias are not loss absorbing on a going concern basis. In particular Ethias has no discretion to suspend coupon payment. The possibility of coupons deferral is 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.”7

Fortis (2008)S/C/T/C

No mention of burden-sharing by subordinated debt holders

Dexia (2010)C

Coupon ban

See para. 201-205.

Dexia (2012)S/C/T/W

LME

Coupon ban

“DBB/Belfius will not distribute any form of dividend in respect of its shares. DBB/Belfius will not make any discretionary early repayment or payment of coupons on instruments (i) issued by DBB/Belfius before 20 October 2011, (ii) held by persons or entities other than DBB/ Belfius and (iii) the payment or exercise of which is discretionary by virtue of the contractual provisions covering these instruments.”8 “The Commission notes that in 2012 DBB/Belfius repurchased its own debt on several occasions at substantial discounts ([50-100] % of the nominal value), which enabled it to generate a profit after tax of EUR [250-750] million. This profit corresponds to the losses sustained by bond holders and thus helps to share the burden.”9 “The Commission also notes that the distribution of dividends, coupons and discretionary early repayments are suspended until 31 December 2014, which are all favourable elements.”10 “Dexia’s shareholders and security-holders have already contributed to the cost of restructuring. Since October 2008, the share price has fallen by over 95 %. Since the initial restructuring plan, Dexia has waived the payment of dividends and the payment or early repayment of discretionary coupons on its hybrid Tier 1 and Tier 2 instruments.”11 “The Commission takes a favourable view of the fact that DMA, the NEC and the JV will not distribute any form of dividend on their shares until 31 December 2015 (except for dividends paid by DMA to the NEC) and that DMA, the NEC and the JV will not pay coupons, except if contractually obliged to do so as a result of a commitment given before 14 December 2012.”12

FIBC

Coupon ban

“In that context the Bank will suspend any coupon payments on outstanding instruments until the State aid has been fully repaid. In particular the Bank will cancel coupon payments on its hybrid and perpetual bands.”13

CCB (2014) C

“There is no outstanding subordinated debt, junior debt or other hybrid/Tier 2 instruments issued by any of the CCIs or the CCB.”14

CCB (2015) C

“Moreover, there is no outstanding subordinated debt, junior debt or other hybrid/Tier 2 instruments issued by the group so that the options for burden-sharing by historical shareholders and subordinated debt holders are limited to a dilution of existing shareholders.”15

AmagerbankenS/T/W

Remaining at the bad bank

“Furthermore, shareholders and subordinated debt holders of Amagerbanken were totally wiped out, which constitutes their maximum possible own contribution in the restructuring of the New Bank.”16

Eik banki

Fionia Bank S/T/W

Remaining at the bad bank

“Furthermore, the subordinated debt remains in Old Fionia. Subordinated debtholders will only be eligible to receive payments out of the profit of the winding-up of the Rump Bank after repayment of the State including a market-based annual interest of 10% and thus provide an appropriate own contribution to the restructuring.”17

Roskilde BankS/T/W

Remaining at the bad bank

“The investors having invested in old RB’s equity and subordinated capital may only get some future compensation via a so-called earnout mechanism after the DNB and DPB are repaid at subscription value plus interest.”18

FIH HoldingC

Coupon ban

“Further, FIH will not make any coupon payments to investors in hybrid instruments or any instrument for which financial institutions have discretion to pay coupons or to call, regardless of their regulatory classification, including subordinated debt instruments, if no legal obligation to make payments exists.”19

CIFW

The limited burden-sharing in this case was justified.

BayernLB C

Coupon ban

“[No servicing of hybrid capital] BayernLB will adhere to a ban on the servicing of hybrid capital. BayernLB will service hybrid capital (such as silent participations (stille Einlagen) and profit participation certificates (Genussscheine)) only if it is obliged to do so even without a release of reserves (Rücklagen) or of the special item referred to in Section 340 f and g of the Commercial Code. […].”20

CommerzbankC

Coupon ban

“Nevertheless they shoulder part of the burden through the ban on dividend payments and on using reserves for coupon payments. The Commission is convinced that there is a limit to imposing a heavier burden on the holders of hybrid capital instruments at Commerzbank.”21

HREC

Coupon ban

“Furthermore, as regards HRE’s subordinated debt holders, Germany has provided a commitment that HRE will not make discretionary payments on profit-related financial instruments to third parties, thereby ensuring that Tier 2 capital holders will get little or no compensation for their investment and will thus participate in the burden sharing in the same way as Tier 1 capital holders.”22

HSH Nordbank C

Coupon ban

“[Hybrids] Until 31 December 2014, HSH may not make any payments in respect of profit- related equity instruments (such as hybrid financial instruments and profit participation certificates (Genussscheine)), in so far as those payments are not owed on the basis of a contract or the law. If HSH’s balance sheet, before adjustment of reserves and retained earnings, shows a loss, those instruments will also participate in the loss. There will be no participation in losses brought forward from previous years.”23

IKBC

No mention of burden-sharing by subordinated debt holders

LBBWC

Coupon ban

“Due to the prohibition on appropriating reserves for the servicing of coupons for tier 1 and tier 2 instruments, the lower-ranking capital owners are also contributing to the restructuring of LBBW.”24

NordLBC

Coupon ban

“[Hybrids] NORD/LB will not service hybrid capital instruments unless it is under a legal obligation to do so and does not need to release reserves and special items in accordance with Section 340(f) and (g) of the German Commercial Code. In this context hybrid capital instruments include all subordinate capital instruments that are serviced contractually or according to their terms of issue only if for the given period there are sufficient earnings before taxes or consolidated profit in accordance with the German Commercial Code.”25

SachsenLB T

No mention of burden-sharing by subordinated debt holders

Sparkasse KolnBonn C

Coupon ban

“The bank has no discretion to suspend or to delay the payment of a coupon on the hybrid instruments if it generates profit in a given year. However, the holders of hybrid instruments also bear to the extent possible the losses incurred by Sparkasse KölnBonn, as both coupon payment and principal of the hybrid capital were suspended or participated in the absorption of Sparkasse KölnBonn’s losses. Therefore, the Commission considers that the maximal possible burden-sharing from its private hybrid investors is ensured and therefore the requirements of the Restructuring Communication for the contribution to the restructuring costs by the private investors are met.”26

WestLB (2011)W

No mention of burden-sharing by subordinated debt holders

Alpha Bank C

LME

Coupon ban

“The Bank’s subordinated debt holders have contributed to the restructuring costs of the Bank. The Bank performed several liability management exercises in order to generate capital. The total amount of liabilities exchanged reached EUR 828 million, with a capital gain of EUR 436 million, as described in recital (114). The still outstanding instruments are subject to the coupon ban mentioned in recital (124). Therefore, the Commission considers that an adequate burden-sharing from the bank’s private hybrid investors is ensured and the requirements of the Restructuring Communication in that respect are met.”27

EFG EurobankC

LME

Coupon ban

“The Bank’s subordinated debt holders have contributed to paying for the restructuring costs of the Bank. The Bank performed several liability management exercises in order to generate capital. The total amount of liabilities exchanged amounted to EUR 748 million, with a capital gain of EUR 565 million, as described in recitals (122) and (123). The still outstanding instruments are subject to the coupon ban described in recital (133). Therefore, the Commission considers that an adequate burden-sharing from the bank’s private hybrid investors is ensured and the requirements of the Restructuring Communication in that respect are met.”28

Pireaus BankC

LME

Coupon ban

“The Bank’s hybrid and subordinated debt holders have contributed to the restructuring costs of the Bank. The Bank has performed several liability management exercises in order to generate capital, as described in recital (134). The still outstanding instruments are subject to the coupon ban mentioned in recital (143). Therefore, the Commission considers that an adequate burden- sharing from the Bank’s hybrid and subordinated debt holders is ensured and the requirements of the Restructuring Communication in that respect are met.”29

National Bank of GreeceC

LME

Coupon ban

The Bank’s subordinated debt holders have contributed to the restructuring costs of the Bank. The Bank has performed several liability management exercises in order to generate capital, as described in recitals (149) and (150). The still outstanding instruments are subject to the coupon ban mentioned in recital (159). Therefore, the Commission considers that an adequate burden-sharing from the bank’s private hybrid investors is ensured and the requirements of the Restructuring Communication in that respect are met.30

T BankS/T/W

Remaining at the bad bank

“The shareholders and subordinated debt holders are not transferred and remain in the entity in liquidation. They will be entitled to proceeds from the liquidation only if the proceeds are sufficient to repay first the Resolution Scheme, which has a priority claim over the other creditors. Knowing that there are no more assets in T Bank, it is very likely that the shareholders and subordinated debt holders will not get back their investments.”31

TT Hellenic PostbankS/T/W

Remaining at the bad bank

“Concerning burden-sharing of shareholders and subordinated debt holders, the Commission has already established, in recital 100 of the New TT Opening Decision, that the shareholders and subordinated debt holders were not transferred to New TT Bank but have remained in TT Bank, that is to say, the entity in liquidation. Hence, the Commission considered that sufficient burden-sharing of shareholders and subordinated debt holders was achieved.”32

(Nea) Proton Bank S/T/W

Remaining at the bad bank

“Concerning burden-sharing of shareholders and subordinated debt holders, the Commission notes that the shareholders and subordinated debt holders were not transferred to Nea Proton Bank but have remained in the entity in liquidation. Therefore, there is a high probability that they will lose their investments. That burden-sharing reduces the aid amount needed. Hence, the Commission considers that sufficient burden-sharing of shareholders and subordinated debt holders is achieved.”33

ATE (2011)C

Coupon ban

“Dividend, Coupon and Call ban: The Hellenic Republic commits that ATE will not pay any coupon or dividend on own funds instruments by using the capital or reserves of ATE for two years except where there is a legal obligation to do so. Furthermore, ATE shall not exercise a call option in respect of those own fund instruments.”34

ATE (2013)S/T/W

Remaining at the bad bank

“The Greek authorities did not transfer shares or subordinated debt to Piraeus Bank.”35

Panellinia BankS/T/W

Remaining at the bad bank

“The equity and preference shares are not transferred to the Buyer but remain in the Bank, the entity in liquidation. Moreover, the Bank does not have any subordinated debt holders.”36

FHBC

No mention of burden-sharing by subordinated debt holders

MKBC

MKB Bank had no outstanding subordinated debt.

Anglo/INBS W

LME

Coupon ban

Subordinated debt holders have also contributed to a significant extent to the restructuring by means of two Liability Management Exercises (hereinafter referred to as ’LMEs’) in Anglo and one in INBS. In total, the merged entity will hold EUR 500 million of subordinated liabilities (as at31 December 2010), significantly less than the subordinated debt held by Anglo and INBS at 31 December 2008 (respectively EUR 5 billion and EUR 300 million), illustrating the massive losses taken by subordinated bond holders. Ireland has committed, in addition, that the merged entity will not pay coupons or exercise calls on subordinated debt instruments and hybrid capital instruments, unless it is legally obliged to do so.

AIB/EBSC

LME

“With regard to subordinated debt holders, a series of Liability Management Exercises/Debt Buy Backs were carried out between 2009 and 2011, which have contributed EUR 5,4 billion of Core Tier 1 capital (buy back of Tier 1 and Tier 2 instruments). Currently, only a marginal amount of subordinated debt remains in the Bank (i.e. around EUR 34 million at 31 December 2012) […]. Therefore, subordinated creditors have adequately contributed to bearing the restructuring costs.”37

BOI (2010) C

Coupon ban

“Finally, as regards the subordinated debt holders, the Commission notes positively that BOI complies with the Commission’s policy on Tier 1 and Tier 2 capital instruments set out in point 26 of the Restructuring Communication. By virtue of its participation in the CIFS and ELG scheme, BOI was already subject to a ban on the payment of discretionary hybrid coupons in line with the Commission’s guidance.”38

BOI (2011)C

LME

“The Commission further notes that the need for additional State aid has been limited to a significant extent by the liability management exercises carried out in July and December 2011, while new capital has been raised on the market.”39

IL&P (PTSB)C

LME

“PTSB also conducted several liability management exercises in 2011 and 2012, representing significant burden-sharing on the part of PTSB’s creditors. Over the course of 2011, PTSB bought back its own subordinated debt with a book value of EUR 1.2 billion for a cash consideration of EUR 0.2 billion, leading to a EUR 1.0 billion loss for subordinated debt holders. In 2012, PTSB bought back its own subordinated debt with a book value of EUR 1.2 billion, for a cash consideration of EUR 0.9 billion, leading to approximately EUR 0.2 billion loss for subordinated debt holders. Therefore, subordinated creditors have adequately contributed to bearing the restructuring costs.”40

Quinn Insurance S/T/W

No mention of burden-sharing by subordinated debt holders

MPSC

Coupon ban

“Moreover MPS commits to a dividend ban until the capital increase has been completed as well as a coupon ban, a ban on advertisement and aggressive pricing strategies and some restrictions on liability managements; those commitments are detailed in the Annex.”41

BRCS/T/W

Remaining at the bad bank

“Subordinated debt is not transferred to ICCREA but remains in the entity in liquidation. While the subordinated debt holders are in principle entitled to proceeds from the liquidation the FDGCC has first claim on repayment of the cost of the intervention before other creditors will be served. Given that the FDGCC claim exceeds the book value of the residual assets (see Table 1), subordinated debt holders will in all likelihood not benefit from the proceeds of the liquidation.”42

Banca Tercas

“However, EUR 189 million (as of 31 March 2014) of subordinated debt of Tercas on a consolidated basis (including its subsidiary Caripe) should have been converted or written down in line with the requirements envisaged in the 2013 Banking Commission in order to reduce the capital shortfall and minimise the amount of aid. The Commission notes that no such conversion or write-down was performed.”43

Parex bankaS/C/W

Remaining at the bad bank

“Subordinated loans by legacy shareholders will be junior liabilities in Parex banka. The liquidation of the assets of Parex banka in the base case scenario does not envisage that sufficient proceeds will be received to cover more than senior liabilities in the bank.”44

LCCUC

Coupon ban

“Further, the Lithuanian authorities confirmed that LCCU had no hybrid instruments with discretionary coupons. In addition, Lithuania confirmed that it would seek prior approval from the Commission before the LCCU repays any subordinated debt earlier than contractually envisaged. That commitment will apply until the LCCU fully repays the State capital.”45

AB Ukio BankasS/T/W

Remaining at the bad bank

“In view of the capital gap it is not expected that either the shareholders or subordinated loans holders will receive any compensation as a result of the bankruptcy proceedings.”46

Kaupthing Bank LuxembourgS/T/W

No mention of burden-sharing by subordinated debt holders

ABN AMROC

Coupon ban

“Against that background, a hybrid coupon and hybrid call ban of 2 years seems to provide appropriate burden-sharing from the company’s capital holders.”47

INGC

Coupon ban

“The calling of Tier 2 capital and Tier 1 hybrids will in the future be proposed case by case to the Commission for authorisation.”

SNS REAAL (2010)C

“At the end of September 2009, SNS announced (after consultation with the Commission) that it would repay subordinated debt below par and issue new subordinated debt at market conditions (exchange of subordinated debt).”48

SNS REAAL (2013)C

Write-down

“As regards the increased burden-sharing requirements under the 2013 Banking Communication, the Commission notes that the Dutch State has not bailed out the shareholders of SNS REAAL and the hybrid debt-holders of SNS REAAL and SNS Bank. As described in recital (13), those shareholders and hybrid debt-holders were expropriated and will only receive a fair compensation in line with the relevant provisions of Dutch law.”49

Aegon C

Coupon ban

“The commitment by the Netherlands whereby AEGON will not make dividend payments to its common stock holders and will not call or repurchase any of the outstanding hybrid securities prior to the full repayment of the CCS ensures that the owners and hybrid instrument holders of AEGON contribute to the restructuring.”50

CGDC

Coupon ban

“Ban on dividend, coupon and interest payments: CGD will not (and shall procure that none of its subsidiary undertakings shall) make any payments of dividends, coupons or interest to holders of preference shares and subordinated debt, in so far as those payments are not owed on the basis of contractual or legal obligations.”51NB: this case was characterised by a breach of the dividend ban.

BPIC

Coupon ban

NB: this case was characterised by a breach of the dividend ban.

BCPC

Coupon ban

“Ban on coupon payments: BCP will not make any coupon and interest payments to third parties on hybrid instruments and subordinated debt which are not held by Portugal, where there is no legal obligation to proceed with such payment.”52

BPNT

Coupon ban

“However, the Commission notes that subordinated bond holders, holding an amount of EUR 245 million, will be maintained in the bank that is being privatised and may continue to receive coupons.”53 “However, since the bank is now being sold, a ban on calls until 31 December 2016 is necessary to provide a minimum level of burden-sharing from the bank’s capital holders. In this respect, the Commission takes stock of the commitment by Portugal that, in order to contribute to the restructuring process of BPN, Banco BIC, the combined entity and Portugal will not exercise until 31 December 2016 any call option rights in relation to subordinated debt issued by BPN prior to the date of the sale.”54

BESS/C/W

Remaining at the bad bank

“All shareholders and subordinated creditors will be left in the Bad Bank.”55

BanifS/T/W

Write-down

“As resolution measure, Portugal will apply the Sale of Business resolution tool combined with the Bail-in tool which under the Portuguese implementation law of Directive 2014/59/EU is already applicable in 2015.”56

AbankaC

Write-down

“To ensure adequate burden-sharing and participation of Abanka’s existing investors in the restructuring, the equity holders and all subordinated debt holders were written down in full prior to the first recapitalisation.”57

Abanka/ Banka Celje

Write-down

Coupon ban

“To ensure adequate burden-sharing and participation of the existing investors in the restructuring, the equity holders and all subordinated debt holders were written down in full prior to the recapitalisation. To that end, Bank of Slovenia has, through a specific order, frozen all the subordinated-debt issued by the bank, of which instruments that were to mature before the adoption of the decision. Those subordinated debt instruments maturing before the date of adoption of the decision are also subject to the bail in. After the recapitalisation the State will become the sole shareholder.”58

NKBMC

Write-down

“The Commission positively notes that the contribution of subordinated debt holders is achieved to the maximum extent possible, thus ensuring adequate burden-sharing. The State capital recapitalisation will only be implemented after the complete implementation of the wipe-out of the subordinated debt holders.”59

NLBC

Write-down

“The Commission positively notes that the contribution of subordinated debt holders is achieved to the maximum extent possible, thus ensuring adequate burden-sharing. The State capital injections will only be implemented after the complete implementation of the wipe-out of the subordinated debt holders.”60

Factor BankaW

Write-down

Coupon ban

“The State recapitalisation will only be implemented after the complete implementation ofthe wipe-out of the shareholders’ equity and subordinated debts. All existing shareholders and subordinated debt holders therefore fully contribute to the orderly winding down costs of the Bank prior to the granting of the State support.”61

Probanka W

Write-down

Coupon ban

“The State recapitalisation will only be implemented after the complete implementation of the wipe-out of the shareholders’ equity and subordinated debts. All existing shareholders and subordinated debt holders therefore fully contribute to the orderly winding down costs of the Bank prior to the granting of the State support.”62

Catalunya BancC

LME

Coupon ban

“As described in section 3.2.1, all hybrids and subordinated debt instruments will be converted into equity following a material haircut on their nominal prices, leading to a decrease in the capital shortfall.”63

NCG Banco C

LME

Coupon ban

“First, the Commission notes positively that the commitments regarding the burden-sharing of hybrid instruments go beyond the prerequisites of the Restructuring Communication. As described in recitals (76) to (78), all hybrids except dated subordinated debt will be converted into equity.”64

BFAC

LME

Coupon ban

“As described above in recital (39), all hybrids and subordinated debt instruments will be converted into equity following a haircut on their nominal prices, further decreasing the BFA Group’s capital shortfall. As the Commission would consider a cash buyback of hybrids securities at market price plus a 10% premium to fulfil the requirements of the Restructuring Communication, it welcomes the commitment by Spain, which results in greater burden-sharing and consequently a decrease in the public funds that are needed to restore viability.”65

Banco Mare NostrumC

LME

Coupon ban

“First, the Commission notes positively that the commitments regarding the burden-sharing of hybrid instruments go beyond the prerequisites of the Restructuring Communication. As described in recitals (60) to (62), all hybrids except dated subordinated debt will be converted into equity.”66

Liberbank C

“First, the Commission notes positively that the commitments regarding the burden-sharing of hybrid instruments go beyond the prerequisites of the Restructuring Communication. As described in recitals (47) to (49), all hybrids will be converted into equity and CoCos eligible as Core Tier 1.”67

Banco de ValenciaT

LME

“Moreover, the Commission notes positively that the commitments regarding the burden- sharing of hybrid instruments go beyond the prerequisites of the Restructuring Communication. As described in recitals (74)-(75), all hybrid capital instruments will also be subject to significant burden-sharing.”68

Banco CAMT

LME

Coupon ban

“As a result, on 24 February 2012, the Commission agreed to a buy-back of a total amount of EUR 167.25 million of subordinated debt held by institutional investors for a price over nominal of 75%. Banco CAM announced on 23 September 2011 through the CNMV that the coupon payment on the Hybrid Securities due on 25 September 2011 would be suspended. Spain has agreed to suspend any payment of coupons until the Commission has decided on the restructuring aid. Finally, as a consequence of the rescue of Banco CAM by BOS, CAM’s Preference Shares have a market value of 0. Therefore, burden sharing has also been applied to the holders of the Hybrid Securities.”69

UNNIM BancT

No mention of burden-sharing by subordinated debt holders

CajatresT

LME

Coupon ban

“First, the Commission notes positively that the commitments regarding the burden-sharing of hybrid instruments go beyond the prerequisites of the Restructuring Communication. As described in recitals (64) to (66), all institutional holders of dated subordinated debt instrument will be offered the option to convert their debt instruments, – subject to a [0-5]% monthly haircut – into new senior debt securities with the same maturity as the original instrument with a zero coupon, and thereby lead to significant haircuts of [20-30]% for the hybrids instruments maturing in 2014 and [60-70]% for the hybrids instruments maturing in 2016.”70

Banco GallecoT

LME

“Moreover, the Commission notes positively that the commitments regarding the burden- sharing of hybrid instruments go beyond the prerequisites of the Restructuring Communication. As described in recitals (59) and (60), all hybrid capital instruments will also be subject to significant burden-sharing. As the Commission would normally consider an exchange of hybrid capital instruments at market price plus a premium into cash to fulfil the requirements of the Restructuring Communication. In that respect, it welcomes that commitment by Spain which results in the maximum legally possible burden-sharing by hybrid instrument holders.”71

CajaSurT

Coupon ban

“As regards the holders of the Hybrid Securities, since the date on which CajaSur was intervened by the BOS, quarterly payments of coupons on the Hybrid Securities have been suspended and no Hybrid Securities have been called by CajaSur. Therefore, burden sharing has also been applied to the holders of the Hybrid Securities.”72

Caja Castilla-La ManchaT

Coupon ban

“Due to legal constrains, subordinated debt holders are to be transferred to Banco Liberta. Notwithstanding this, in order for them to contribute to the restructuring process of CCM, the Spanish authorities provided the commitment that Banco Liberta’s will not exercise any call options during the period it enjoys financial support from the FGD.”73

Banco CEISS (2012)

LME

Coupon ban

“First, the Commission notes positively that the commitments regarding the burden sharing of hybrid instruments go beyond the prerequisites of the Restructuring Communication. As described in recitals (60) to (62), all hybrids except dated subordinated debt will be converted into equity.”74

LBGC

Coupon ban

“Finally, as regards the subordinated debt holders, the Commission notes positively that LBG will comply with the Commission’s policy on Tier 1 and Tier 2 capital instruments set out in point 26 of the Restructuring Communication. As described in recital 112 above, LBG will shall not pay investors any coupon on capital instruments or exercise any call option rights in relation those instruments between 31 January 2010 and 31 January 2012 unless there is a legal obligation to do so.”75

RBSC

Coupon ban

“Finally, as regards the contribution of the subordinated debt holders, the Commission notes positively that RBS will comply with the Commission’s policy on Tier 1 and Tier 2 capital instruments set out in point 26 of the Restructuring Communication. As described in recital (104) above, RBS will not pay investors any coupon on capital instruments or exercise any call option rights in relation to those instruments for a two year period unless there is a legal obligation to do so.”76

B&BS/T/W

Remaining at the bad bank

Coupon ban

“As regards B&B’s hybrid debt holders who remained with Rumpco, the Commission notes positively that the UK undertook to conduct a restrictive policy on coupon payments and call options on hybrid capital. In particular, Rumpco will not make payments of interest and principal on the hybrids before the statutory debt will have been repaid with the exception of payments under the Capital Funding Notes. In addition, the Commission notes that Rumpco shall not be recapitalised in order to prevent a breach of minimum regulatory capital requirements upon such payments.”77

Northern RockS/C/W

Remaining at the bad bank

Coupon ban

“Furthermore, NR’s subordinated debt holders will remain with AssetCo. This means that they will be compensated through the amounts that are recovered from AssetCo’s assets. As subordinated debt holders, […]. The State, on the other hand, will be a senior creditor by virtue of the loans (BoE/HMT liquidity facility and the working capital facility) it has provided to AssetCo. Therefore, […]. In addition, NR has recently decided to defer coupon payments and payments on the principal on cumulative Tier-2 and related Tier-1 instruments where it has discretion to do so. The United Kingdom has furthermore provided a commitment that AssetCo will continue to defer those payments after the split-up. […].” 78

DunfermlineS/T/W

Remaining at the bad bank

“The subordinated debt holders will in any case not benefit from the measures taken by the UK authorities to prevent Dunfermline’s failure. They are part of the Rump Dunfermline which is in the process of being liquidated. They rank last or second last and will only be paid out after all the other creditors have been compensated. In this regard, the Commission also notes that the depositors, which in building societies such as Dunfermline are also the owners, have lost all ownership rights in the Rump Dunfermline.”79