(The following statement was released by the rating agency)
Oct 12 - Banks' interest in issuing dated deferrable hybrid capital seems to be rising. Yetthese structures would not qualify as regulatory Tier 1 capital under Basel III. The emergingissuance trend puts the spotlight on the equity content of dated deferrable hybridcapital. In a Credit FAQ titled "Why Banks' Dated Deferrable Hybrid CapitalInstruments Often Have Minimal Equity Content," Standard & Poor's RatingsServices' sheds light on its criteria for analyzing bank hybrid capital andhow the features of such structures affect its assessment.
We understand that several banks are considering issuing dated deferrable Tier2 capital instruments that, according to our criteria, may have intermediateequity content. By contrast, we had anticipated that new bank hybrid capitalwould be predominantly perpetual noncumulative instruments with featuresallowing the write-down or conversion of principal into common equity, orother forms of contingent capital. This was in light of developments in Tier 1regulations. The shift we have observed toward cumulative, dated instrumentsis, in our view, a step backward in terms of the equity content of bankhybrids.
The article looks at dated subordinated bank capital instruments that can onlyabsorb losses via coupon deferrals, which Standard & Poor's generally expectsto classify as having minimal equity content.