(Adds detail, context)
BERLIN, March 19 Germany is preparing to offer
its banks favourable tax treatment on a special type of hybrid
bond, aligning German rules with those in other European
countries and opening the door to billions of euros in new debt
German banking association BDB said it had information
pointing to a decision soon from Berlin authorities, saying it
had become an urgent matter for banks seeking to bolster their
balance sheets and that a delay risked putting the country's
financial sector at a competitive disadvantage.
"It is urgently necessary that German authorities create
legal certainty for the additional core capital quickly," BDB
head Michael Kemmer said in a statement on Wednesday.
German banks have waited to issue so-called Additional Tier
1 (AT1) capital until the national tax treatment was clear,
unlike some banks in other EU countries who have come to market
in the expectation that rules would be decided in their favour.
Deutsche Bank alone plans to issue at least 5
billion euros ($7 billion) of AT1 capital, which can include
contingent capital instruments known as CoCos, before the end of
next year, paving the way for other banks.
German property lender Aareal Bank has said it
seeks to repay the 300 million euros in state aid it received in
the financial crisis by issuing AT1 instruments later in the
Banks in Britain, France, Switzerland, Denmark and Belgium
have all issued AT1, after they laid the needed regulatory
groundwork. Italy and the Netherlands are also in the process of
changing their legal frameworks.
AT1 bonds can convert into shares, be temporarily written
down, or get wiped out if a bank's capital falls below a set
Investor demand for AT1 issues has been high, allowing banks
to raise cheap capital to fortify their balance sheets and
improve their leverage ratios. Banks have been especially keen
to raise new capital ahead of a balance sheet check underway by
the European Central Bank.
Under the bank safety framework known as Basel III, banks
can raise 1.5 percentage points of their 6 percent Tier 1
capital ratio using AT1.
Bankers and investors expect German banks to use the
structure set by French banks, where if bank regulatory capital
falls below a certain threshold, bondholders lose their
investment. But investors still have the potential to recover
those losses should the bank return to health.
According to JP Morgan, Deutsche Bank's AT1 requirement is
almost 13 billion euros while Commerzbank may need to raise
almost 2.5 billion euros in AT1 capital.
Total European issuance of AT1 capital is likely to reach 31
billion euros in 2014, JP Morgan analysts estimate, based on a
peer group of 25 European banks. Researchers at Citibank expect
European banks to issue around 20 billion euros in AT1 capital.
A spokeswoman for the German Finance Ministry said that
final discussions on the tax status of the AT1 instruments were
ongoing but declined to comment further.
($1 = 0.7189 Euros)
(Reporting by Klaus Lauer in Berlin and Helene Durand in
London; Writing by Thomas Atkins; Editing by Anthony Barker)