February 5, 2015 / 2:28 PM / 3 years ago

BNP Paribas to restart Tier 1 issuance, targets TLAC needs

LONDON, Feb 5 (IFR) - BNP Paribas is planning to restart issuing Tier 1 debt after a lengthy absence from the market in a bid to address a potential 34bn capital gap under new global rules.

The French bank wrote in today's results presentation that it would resume Tier 1 sales to raise 500m annually on average as well as placing 2bn to 3bn in Tier 2 every year to meet the more stringent capital requirements by 2019.

These are much needed measures for the bank, which looks short of capital under newly proposed rules to improve global banks' safety and avoid taxpayer rescues.

Under the bank's calculations, it may have as much as a 34bn shortfall to meet a minimum 16% total loss-absorbing capital (TLAC) ratio.

The FSB laid out plans in November last year that could require global systemically important banks, or G-SIBs, to have a safety buffer of TLAC equivalent to at least 16%-20% of risk-weighted assets from January 2019.

2019 is the earliest date the TLAC requirements could kick in.

"BNPP needs to show it can do Tier 1 and that it is working on building a capital cushion," said a DCM banker. "Once they have done that, the market will be able to move on and it will be a lot easier for them to raise Tier 2 or bail-inable instruments that can count for TLAC."

BNPP's business development plan for 2014-2016 referred to the TLAC requirements, noting that the bank would undertake a "gradual replacement of part of the senior debt with bail-inable debt (not necessarily Tier 1 or Tier 2)".

Clearer terms around TLAC-eligible instruments are expected by the end of 2015 once the FSB concludes the Quantitative Impact Study of the new requirements.

As of year-end 2014, BNPP's wholesale medium- and long-term funding structure comprised EUR8bn in Tier 1 debt and EUR13bn in other subordinated debt. It also has EUR94bn of senior unsecured and EUR31bn of secured paper outstanding.

While French peers Credit Agricole and Societe Generale have already issued AT1, BNP Paribas, France's largest bank, has yet to do so.

Under Basel III, banks are permitted to hold up to 1.5% of their RWAs in the form of AT1 capital, which could eventually count towards the TLAC requirements.

The French bank painted a pessimistic picture as it delivered its results. It posted 2014 net income of EUR157m after its profit was almost entirely wiped out last year by a near USD9bn fine to settle a US sanctions violations case.

"The group is facing a deteriorating economic and interest rate context compared to the base scenario," it said in a statement. "The group is also facing a sharp rise in taxes on banks in Europe."

But BNPP said its balance sheet is "rock-solid" with a fully loaded Common Equity Tier 1 ratio of 10.3%. This is in line or slightly higher than other banks which have already reported, including BBVA (10.4%) and Santander (9.6%). (Reporting By Alice Gledhill, Editing by Helene Durand and Julian Baker)

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