The French government has announced the introduction of a plan to support lending growth within the economy. This plan is subject to review by the European Commission. Open to banks who comply with regulatory capital requirements imposed by the Commission bancaire, this plan allows them access to complementary funding in the form of subordinated debt which counts towards Tier 1 capital.
In the interests of its clients and shareholders, BNP Paribas has decided to take part in this plan to the tune of 2.55 billion. Under this plan, BNP Paribas
will
have
access
to complementary funding on satisfactory terms, taking into account the Groups financial strength, at a time when debt markets for this kind of funding remain inactive.
The subordinated debt to be issued equates to a loan which doesnt give rise to the French State taking a stake in BNP Paribas in contrast to the recent
mechanisms, set up by Governments around the world, for recapitalising
banks in difficulty. This issue will not be dilutive for shareholders and will not impact the banks
governance nor its dividend policy.
The purpose of this operation is not to increase the banks Tier 1 ratio which complies with the Commission bancaires requirements. Generally speaking the French market remains one of the most resistant in Europe. In addition, the BNP Paribas Group has, since the beginning of the crisis, demonstrated its ability to generate solid earnings based on its widely diversified activities and its rigorous risk policy. It is therefore particularly well placed to play its role in accompanying its customers and the financing of the economy.
“With the acquisition of Fortis businesses, BNP Paribas both becomes the Eurozones number 1 bank by deposits and significantly strengthens its capital position,” says Baudouin Prot, CEO of BNP Paribas. “In taking part in the French States scheme and issuing subordinated debt, BNP Paribas has the means to pursue its organic growth strategy which is based on the dynamism of its salesforce
and
an
even
further strengthened financial structure.”
BNP Paribas commits to issue 2.55 billion of hybrid debt before year end, entirely bought by SPPE, a company created by the French State for this purpose.
These securities will take the form of hybrid debt (TSSDI), with a 5 year call option at the issuers option. An earlier reimbursement is allowed in agreement with the Commission bancaire if the securities are replaced by hybrids of equivalent subordination and nominal value.
For BNP Paribas, the debt will be remunerated to the French State on the following basis: 5-year OAT yield + approximately 400bps In exchange, BNP Paribas will fix growth objectives for its loan commitments to the economy and commit to applying ethical rules as defined by the MEDEF which are already largely in place within the Group.
D.C.