Submission #13

EBF

Question 1: Would you suggest any changes to the definitions of valuation approaches (letters e-i)? In particular, are there specific valuation methodologies which the definition of equity value should refer to? The EBF dos not suggest any change to the definition of valuation approaches.

Question 2: Should specific types of information be required on deviations from management assumptions, for example on differences in expected cash flows and/or the discount rates?

Yes, as previously mentioned, it may encompass: (i) historical evidence based on supervision authorities warnings as to the correct usage of prudential assumptions by the failing entity; (ii) an evidence, like benchmarking, that the reason for the change in the assumptions is based on market practice.

Question 3: Would you add, amend, or remove any areas which are likely to be subject to significant valuation uncertainty? No comments.

Question 4: Should the buffer instead always be greater than zero? If yes, how should the buffer be determined? See general comments.

Question 5: Do you agree that a valuation of post-conversion equity is necessary to inform decision on the terms of write-down or conversion?

If that valuation doesn't exist how can it be ensured/demonstrated that the no worse off"/"safeguarding of creditor seniority" principle is safeguarded by the proposed resolution strategy? Or is that guarantee only relevant for compensation calculation purposes? And, in that case, is it fair that a possible error in the conversion be transferred/be the responsibility of the Resolution Fund instead of being borne by creditors/shareholders of the entity under resolution?"

Question 6: Do you agree with the definition of equity value for this purpose in Article 2 (i)? If not, what changes should be made to the definition? Should the definition be more closely linked to the net asset value determined on the basis of the remainder of valuation 2 adjusted for goodwill/’badwill’, and if so how should that adjustment be estimated? No comments.

Question 7: As an alternative, should the use of information that becomes available after the resolution date be more restricted, and in particular permitted only if it refers to facts and circumstances existing at the resolution date which could reasonably have been known at that date?

We find it difficult to support the argument which could reasonably have been known" when all valuations are made based on the identification of quantitative and qualitative factors that may influence the values."

Question 8: Should the use of information available after the resolution date be further limited, for example by requiring that such information is only used if it results in a significant change in the values of the entity’s assets or liabilities?

We agree with the principle, which is aimed at re-establishing fairness in the values received by all stakeholders. It raises, however, some questions: i) What is the meaning of significant change"? We believe there should be, for example, a percentage limit to the change in values; ii) We understand there is a need to set a moment after which there will be no further revisions to the identified values, to avoid introducing an element that may dictate the need to change the decision made; iii) It results in an uncertainty factor to the Resolution Fund in case the Fund is responsible for the reimbursement of differences."

Question 9: Should these technical standards provide further detail on the characteristics of appropriate discount rates?

A comprehensive and detailed reasoning of the valuation, as well as of all its supporting elements (which go beyond the information on discount rates), should be an integral part of the exercise.

Question 10: Are there any changes you would suggest to the methodology for determining actual treatment of shareholders and creditors in resolution? In particular, should the methodology for valuing equity be further specified and, if so, what should be included in that specification (whether additional detail on the current approach, or a different approach, linked for example to net asset values adjusted for goodwill/badwill)?

Calculations, either for equities or debt instruments, should be based on market prices, except in cases where there is proven evidence of market disruptions (may need the endorsement from macro prudential and markets supervision authorities?). We believe it makes sense to link the valuation process under discussion on this paper with the position that is being taken on other EBA's public consultations, namely EBA/CP/2014/39 (CP on the rate of conversion of debt to equity in bail-in).

Question 11: Should the valuer be required to accompany the comparison envisaged in Article 7 of this Regulation with additional relevant disclosures? If yes, what should those be (for example, documentation of any differences between the valuation of actual treatment and the market price that would be observed for those same claims were they traded in an active market)? Yes, as set out in our previous answers.

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