Article 25 (5) (b) requires EBA to “(…) develop draft regulatory technical standards to specify (…) whether and when multiple distributions would constitute a disproportionate drag on own funds”.
The draft RTS gives EBA’s definition, when multiple distributions constitute a disproportionate drag on own funds: if they are more than ¼ higher than the ones on voting common equity tier 1 instruments and if all distributions on CET1 instruments exceed 105% of the level reached if all instruments received the same distribution.
We fail to see EBA’s point on whether multiple distributions would constitute a disproportionate drag on own funds. EBA gives no reasoning why 25% more distribution on a non voting instrument than on a voting instrument would constitute ad disproportionate drag on own funds. Nor does EBA explain why 5% more distribution than a even distribution on all CET1 instruments would constitute such disproportionate drag on own funds.
The only reasoning given for these limits is given in paragraph 5.1.3 (9) and (19). Mentioning that the limit would be in line with the existing rules in 4 (of 28) European member states and not be incompatible with estimates in academic literature, giving no reference.
Contrary to EBA, we think the 125% limit is overly restrictive. We see no indication that larger distributions to non-voting common equity tier 1 instruments would create a undue drag on the capital base. The same holds true for the 105% cap.
To the contrary, agreed multiple distributions have no influence on the quality of common equity tier 1, provided that the distribution is in the issuer's sole discretion. Also, such a restriction would place at a disadvantage those credit institutions which due to their ownership structure can issue new voting capital shares only to a very limited extent and very much have to rely on non-voting instruments.
Retaining EBA’s approach to the limits, we would not expect disproportionate drags on own funds if distributions on non voting shares would not exceed 150% of voting shares distributions and all distributions would not exceed 110% of the level of an even distribution.
We do not see the requirement to disqualifiy from CET1 ALL outstanding CET1 instruments with a dividend multiple if the conditions of paragraphs 1 and 2 are not met. It would be even contradicting prudential purposes as institutions which want to have a broader capital base need to issue instruments which explicitly do not comply with CET1 requirements (for instance Tier 2-instruments or other) in order to prevent paragraph 3 to be applicable. This would lead to more different capital issuances making the capital base intransparent.
The regulatory content of the tests is basically clear. In our opinion, however, test 2 and the last three of the conditions named cannot be applied to institutions under public law. Usually, voting rights do not exist there, so that it is not possible to perform the requested proportionality assessment between voting and non-voting instruments. We, therefore, suggest to adjust the standard in this respect.
Moreover, we cannot comprehend why the distributions on voting instruments have to be low in proportion to comparable instruments. Unfortunately, the standard does not provide a reason for this. Due to the lack of voting instruments, this condition as well cannot be met by institutions organised under public law.
Paragraph 2 refers to the conditions for joint-stock companies which have been examined already at questions 1 and 2. Therefore, we cannot understand why reference to this paragraph is made again here.
We believe the paragraph is not appropriate, cf. also the replies to questions 3, 4 and 6.
According to Art. 28 (3) CRR, multiple distributions may be made, provided the multiple distributions do not constitute a disproportionate drag on own funds. According to the reasons given regarding test 2, the 30% limit for the distributions of the most recent five years is to prevent a disproportionate outflow. We cannot see the connection.
The payout ratio of recent years is not influenced directly and exclusively by multiple distributions. Rather, it is an indication of the institution's distribution policy. This is in particular true of the first years under the regime of the CRR. Under certain circumstances, it may be reasonable to limit distributions. Hence, in our opinion, the precondition stated in Art. 28 (3) CRR (no disproportionate outflow) is not directly connected with this.
This question does not correlate with Q7 in the consultation paper. Hence, we will her state the answer to Q 7:
Q7: Please provide data on the distributions as well as possible references to be used as benchmarks for the distributions on voting instruments issued by non-joint stock companies. How would you assess that distributions on voting instruments issued by non-joint stock companies are low? Can you suggest a methodology?
Unfortunately, we do not have appropriate data or methods. However, we urgently ask to (again) consult the industry as to any methods which may come into consideration.
