4 billion and BPCE for 1 billion in March

For banks, "cleansing" of the balance sheet required by Basel 3 will put an end to their innovations in hybrid capital entering the calculation of their Tier-1 capital. They are clearly issue now of the "real" capital, namely common shares. With less interest, at the time, to keep on their balance sheet these subordinate and other titles which cost on average 10 interest, they should make a series of buybacks advance (prior to the classic redemption date provided in the contract), anticipates the investment Tikehau IM company.

The issue is far from harmless. Some 280 billion euros of hybrid securities from banks are circulating in Europe. The France is the second largest of the country of issue of hybrid securities Bank Tier-1 with 43 billion euros, behind the United Kingdom. They weigh 21 of the capital of Société Générale (7.4 billion), of which 1.5 billion are innovative, and 22 of BNP Paribas (13.4 billion) including innovative 9.9 billion. "The banks have any interest to these redemptions if their titles are treated with a haircut." "They alternative them at a price lower than their original value while offering a bonus to investors", says Mathieu Chabran, Director General of the investment company.

This is the case for BPCE whose titles rate to 91.8 of their value, or of the Crédit Agricole, 94.9. The Green Bank, in the wake of Italian, Anglo-Saxon and Spanish banks, had already benefited from this type of opportunity in April 2009 when she had bought securities included in the additional own funds ("Upper Tier-2"), treated with 55 of their value on the secondary market. Institutional investors are already elsewhere arbitrations on this market, preferring to wear these titles and receive a recurring coupon, buy shares and to dilute in capital increases that banks will start to build their own funds.

The effect may be reversed

But for other market operators, it is not written that banks should proceed with such massive recalls. "In most cases, the banks have issued these hybrid securities in better market conditions, cost a low coupon." "Economically, they will be not necessarily interest refinancing with new hybrid titles paying high or even coupons to replace common shares coming to dilute existing shareholders", said Thomas Flichy, Vice President in the capital of Barclays Capital product solutions team.

Banks will also benefit from a so-called "grand-fathering" clause (waiver). Hybrid titles that do not meet the regulations can be stored in the Tier-1 for a period of time. Thus banks would be encouraged to remember these titles that where their traditional date of redemption ("call"), included in the original contract would be after the period of tolerance. "I do not have the feeling that there will be a large number of reminders", thus considers Alain David, BPCE Executive Financial Director. If the "grand-fathering" clause is attractive, the effect may be reversed. The banks may have to depart from their commitment to classical redemption, interest provided for in the contracts of hybrid securities, in securities issued at low prices. Some is there are already risky, to the displeasure of investors, as Deutsche Bank in December 2008. HSBC comes to one of the largest emissions of hybrid securities (EUR 3.4 billion) and BPCE for 1 billion in March. This is not bad news for investors. Even if the titles are not recalled by the banks of early, future emissions of true capital of the banks will raise credit quality, says Mathieu Chabran.