Update: even without deductibility, ING stays on Cocos



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Banks continue to believe in capital instruments.

(ABM FN-Dow Jones) ING Group continues to hold its hybrid bonds or cocos as additional capital base, even though the tax deductibility of coupon interest on these perpetual loans is extinguished. next year. This said a spokesman for the bank on Monday.

"We continue to believe in this instrument," spokesman Christoph Linke told ABM Financial News. He can not say exactly what will be the financial consequences of removing the deductibility for the bank because the amendment to the law has not yet been published.

ING has 3.25 billion euros in outstanding Cocos, which can be repaid between 2020 and 2025 at the earliest, with annual interest rates ranging from 6,000 to 6.875% .

On Friday, the Dutch Ministry of Finance announced the firm's decision to remove the tax deductibility of the capital instrument as of 1 January 2019. A consideration has been a recent response from Brussels. There is a doubt about the fact that there is no state aid, because the tax benefit of this type of surety affects only the sector financial. In order to avoid that the tax deduction already granted is refunded by the banks, the regulation is now deleted preventively.

The Dutch Banking Association said Monday in a response on behalf of the banking sector that the decision is a surprise. Banks believe that loss absorbing bonds contribute to financial stability. "Banks assume that the effect of the measure is reflected in the total tax burden on the financial sector," according to the NVB. "An equal European playground must also continue to exist."

Surcharges on additional Tier 1 capital instruments of Dutch banks increased on Monday. The spreads on some Coco values ​​of Rabobank and ABN AMRO rose 20 to 35 basis points on Monday, ING bank credit analysts told ABM Financial News.

This reflects the fear among investors that banks will redeem securities early. This is usually allowed after a "tax event" or a change in tax treatment. Normally, these types of "perpetual" bonds are redeemed after five or ten years, but under certain circumstances, this may also be earlier.

Credit analysts doubted that Dutch banks would pay off alternative capital more quickly. The regulator must give its approval for this and will not want the capital reduction to be amortized accordingly. The bank must also consider its reputation with institutional investors.

The government estimates that the capital stock or the retained earnings of the banks will absorb the risks better than the "additional" Tier 1 capital. This is why the government does not consider any more a good incentive for the banks to offer tax benefits for coco. This has already been announced in the coalition agreement, said credit analysts.

According to the Financieele Dagblad, the abolition of the deductibility will increase the annual costs of Dutch banks and insurers by about half a billion euros, based on a transmission by the Central Planning Board. This account should be deposited with customers, for example by increasing interest rates on loans.

ABN and Rabo

Meanwhile, ABN AMRO and Rabobank also answered the question. "The proposed measure does not affect Rabobank's vision of the role of coco in its capital strategy," Rabobank said. ABN AMRO stated that it took note of the Ministry's statement and added no intention to exercise the additional Tier 1 capital instruments.

Update: to add comments.

By: ABM Financial News.

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(END) Dow Jones Newswires

2 July 2018 15:01 pm (19:01 GMT)

Copyright (c) 2018 ABM Financial News. All rights reserved.

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