Royal Bank of Scotland has announced:
In the context of ongoing discussions between the UK Government and European Commission about the RBS restructuring plan and the Commission’s recent communication on restructuring, which states that, where possible, banks subject to restructuring under State aid rules should not use this aid to remunerate their own equity and subordinated debt, the FSA has objected to RBS calling at this time the following four subordinated debt instruments with call-dates in October 2009:
National Westminster Bank plc securities: Upper Tier 2 securities, EUR 400m, callable 5 October
National Westminster Bank plc securities: Upper Tier 2 securities, EUR 100m, callable 5 October
Royal Bank of Scotland plc securities: Lower Tier 2 securities, AUD 590m, callable 28 October
Royal Bank of Scotland plc securities: Lower Tier 2 securities, AUD 410m, callable 28 October
RBS is therefore not calling these subordinated debt instruments, consistent with their terms and conditions. Further, future decisions on whether or not to call capital instruments will be subject to consultation with the same parties, as well as circumstances (economic or other) prevailing at the time, pending the European Commission’s decision on RBS’s restructuring plan.
The terms of this sub-debt are not stated in the Annual Report 2008, but it is safe to assume that RBC could not borrow on commercial terms at the step-up rate.
Bloomberg reviews other European issues:
The executive arm of the European Union is insisting investors share with taxpayers the burden of saving banks, and already told Bayerische Landesbank, Germany’s second-largest state-owned lender and Anglo Irish Bank Corp. to defer payments on subordinated debt.
As well as not calling junior notes, some European banks bailed out with state funds have skipped interest payments on the debt. Northern Rock Plc, the first lender nationalized by the U.K. in the deepest credit crisis in decades, said last month it would defer coupons on eight subordinated bonds with an aggregate face value of about $2.74 billion.
Earlier this year Moody’s, DBRS and S&P downgraded bank hybrids on fears that exactly this would happen: that banks would be forced to treat their sub-debt in a businesslike fashion.
The issue of bank sub-debt redemptions has been previously discussed on PrefBlog.
Update, 2009-9-28: See also Hybrid Debt Attack: A Posse of Regulators is on the way.
[…] that the moment has passed, they are getting tough on banks that are already mostly nationalized, but throughout the crisis they have routinely approved the redemption of sub-debt, which is […]