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German banks urge clarity on contingent bond rules
January 10, 2014 / 6:21 PM / 4 years ago

German banks urge clarity on contingent bond rules

FRANKFURT/BERLIN, Jan 10 (Reuters) - Germany’s commercial banks urged regulators on Friday to quickly clarify whether they can issue billions of euros in bonds to fulfil new capital requirements aimed at limiting the damage from future financial crises.

German lenders are still waiting for a green light from national authorities before issuing the bonds, while foreign rivals have stolen a march in tapping investors to bolster their capital safety buffers to meet the tougher international banking standards known as Basel III.

Among the lenders, Deutsche Bank alone plans to issue 5 billion euros in bonds by the end of 2015.

“For Germany as a banking centre it is high time that the authorities create legal certainty regarding additional core capital,” Michael Kemmer, managing director of the BDB banking association, told Reuters.

“Germany should keep pace with other European states like France, The Netherlands, Spain or the UK,” Kemmer said.

At least three German banks have asked regulators officially for a clarification, financial sources said.

It remains unclear in Germany whether banks will be allowed to deduct interest payments on these relatively expensive bonds from their taxes as a business expense. The banks also want to know if foreign investors in the bonds would continue to be exempted from a deduction of tax at source.

There is also the question of whether the bonds would count as equity capital for tax purposes.

“For the issuing banks as well as for investors, these bonds are only attractive if they correspond to international tax standards,” Kemmer said.

The Finance Ministry in Berlin said the rules governing the bonds, known as contingent capital or “CoCo bonds,” were the subject of “discussions” with the Germany’s federal states and the ministry did not want to comment on the possible outcome.

CoCos are bank bonds that share the loss-absorbing characteristics of equity, as they can be written down or converted into capital in times of stress.

Banking watchdog Bafin, which is tasked with determining whether the bonds meet regulatory criteria as additional capital, declined to comment. (Reporting by Alexander Huebner and Matthias Sobolewski, writing by Jonathan Gould; Editing by Elaine Hardcastle)

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