European Banking Authority Opinion on Legacy instruments
On the 21st of october the EBA released its long-awaited opinion on Legacy instruments which had been delayed by Covid 19.
Many investors and analysts were a bit puzzled by this opinion and did not really know what to expect
- Would the Covid crisis lead the EBA to reaccept Legacy bonds in the capital stack?
- Would it change the new rules adopted in the Banking Package?
- Would the EBA incentivize banks not to call Legacy bonds in order to preserve capital in difficult times?
The EBA expressed a very clear opinion that Legacy bonds must be taken out, and rather sooner than later. In the words of the EBA “for instruments with an issuer’s call option in the short to medium term, the EBA reasonably anticipates that institutions will use this possibility as a first option”.
Globally, this opinion is very supportive of the Legacy asset class.
More details in our note available by clicking on the right hand side button.