Capital at SEB. Hampus Brodén. Head of Group Financial Management

Transcription

1 Capital at SEB Hampus Brodén Head of Group Financial Management 1

2 Capital one of the four main perspectives of our balance sheet Jun 2013 Balance Sheet Structure, Jun 2013 Liquid assets Short-term funding Banking book Stable funding 2

3 Balance sheet considerations at SEB Jun 2013 Balance Sheet Structure, Jun How much and what kind of capital do we need? 1 3

4 Balance sheet considerations at SEB Jun 2013 Balance Sheet Structure, Jun How much and what kind of capital do we need? 2 What asset encumbrance can we tolerate and how much bail-inable liabilities must we have? 4

5 Balance sheet considerations at SEB Jun 2013 Balance Sheet Structure, Jun How much and what kind of capital do we need? What asset encumbrance can we tolerate and how much bail-inable liabilities must we have? 3 3 How much stable funding do we need relative to illiquid assets? 5

6 Balance sheet considerations at SEB Jun 2013 Balance Sheet Structure, Jun How much and what kind of capital do we need? What asset encumbrance can we tolerate and how much bail-inable liabilities must we have? How much stable funding do we need relative to illiquid assets? How much liquid assets do we need to be able to handle periods of shut down funding markets or severe stress and deposit outflow scenarios 6

7 Balance sheet considerations at SEB Jun 2013 Balance Sheet Structure, Jun Today s focus 1 7

8 Capital not what the crisis primarily was about Excessive liquidity risk, insufficient underwriting and increased complexity were most important drivers of crisis. Banks however still will need to increase capital. Equity/assets, European commercial banks, Equity/assets, Swedish banks, Source: Per Hortlund (2005) "Do Inflation and High Taxes Increase Bank Leverage and SEB 8

9 Capital benchmarking SEB has high quality capital across all regulatory metrics Different regulatory Equity Tier 1 ratios June 2013 Source: Company reports 9

10 But what is the optimal capital structure? 10

11 Several factors impacting what will be the optimal capital structure Jun 2013 Balance Sheet Structure, Jun Decisive factors Economic Capital Basel CRD4/CRR RRD Swedish finish Rating agencies Investors Deposit holders Metrics to watch CaR CET1 AT1 T2 Leverage ratio RAC ratio National discretion so large it doesn t say much Swedish finish still what will be the decisive framework Basel has toughened the leverage ratio definition 11

12 Capital what are the bottlenecks Jun 2013 Capital, SEKm AVAILABLE REQUIRED Current primary bottleneck 1 Available capital Actual CET1, AT1 and T2 capital on Basel III basis Potential runner up Swedish finish CET1 >12% (14.2%) AT1 >1.5% T2 >2% RAC ratio TAC/S&P RWA >7% (7.8%) Picture on the left is a simplification as TAC is not exactly = T1 Leverage ratio T1/adj. assets >3% (3.7%) CaR Capital at Risk Capital required to cover losses modeled to occur in 99.97% of years. 12

13 Three different buffers to mitigate systemic risk Global Systemic Institution Buffer Following EP proposed amendments the political agreement includes a mandatory systemic risk buffer of CET1 capital for banks that are identified by the competent authority as globally systemically important. This buffer ranges between 1 3.5%. Other Systemic Institution Buffer In addition to the mandatory Global SII buffer the political agreement provides for a supervisory option for a buffer on other systemically important institutions. This includes domestically important institutions as well as EU important institutions. This buffer is maximised to 2%. Systemic Risk Buffer Each Member State may introduce a Systemic Risk Buffer of Common Equity Tier 1 for the financial sector or one or more subsets of the sector, in order to prevent and mitigate long term non-cyclical systemic or macroprudential risks with the potential of serious negative consequences to the financial system and the real economy in a specific Member State. Until 2015, a buffer rate of 3% could be imposed to all exposures. From 2015 and onwards a buffer rate of 5 % can be imposed for local and third country exposures. Even higher buffers after adoption of implementing act by the EU-Commission ( unlimited ) 13

14 Systemic risk buffers dependent on location of exposures Exposure in Approximate SEB share of exposures based on location of counterparty Sweden 51% (incl. op-risk and market risk) Other EU 35% Outside EU 14% 14

15 CRD IV here but even Pillar 1 requirement still unclear 16,0% 16,0% 14,0% 12,0% Counter Cyclical Buffer 0-2.5% Alternative % 14,0% 12,0% Counter Cyclical Buffer 0-2.5% Alternative % 10,0% Local and 3rd country 65%*2% Systemic Risk Buffer 1.3% 10,0% Local 51%*5% Systemic Risk Buffer 2.5% 8,0% All exposures 100%*3% Systemic Risk Buffer 3.0% 8,0% O- SII Buffer 2.0% 6,0% Capital Conservaton Buffer 2.5% 6,0% Capital Conservaton Buffer 2.5% 4,0% 4,0% 2,0% Minimum Requirement 4.5% 2,0% Minimum Requirement 4.5% 0,0% CRD IV Alternative 1 0,0% CRD IV Alternative 3 However national discretion regarding Counter Cyclical Buffer and Pillar II add-on is so large that the Swedish authorities can settle for a range of requirements. 15

16 Main uncertainty counter cyclical buffer Permanent and high or intellectually honest Private sector debt/gdp proposed as a driver of CCB by Basel and trending down in Sweden Sources: Statistics Sweden and the Riksbank Sources: Statistics Sweden and the Riksbank Sources: Statistics Sweden and the Riksbank Swedish FSA s application of the counter cyclical buffer will be key Could be based on the above and/or: various asset prices funding spreads CDS spreads credit condition surveys real GDP growth data on the ability of non-financial entities to meet their debt obligations on a timely basis 16

17 RAC and Leverage Ratio Based on latest reported SEB s leverage ratio and RAC ratio compared to estimates for the European banks We believe Basel and EU will go for 3% threshold 17

18 Leverage ratio runner up bottleneck and essentially a risk weight floor 3% leverage ratio equals 22.2% risk weight floor when aiming for 13.5% T1 ratio Required capital for 100 units of lending Units of capital needed for 100 units of lending % risk weight Capital requirement based on minimum 3.0% leverage ratio Risk weight 3% leverage ratio 13,5% T1 18

19 Implicit risk weight floors on different T1% and leverage ratio requirements Different implied risk weight floors at different combinations of T1% and leverage ratios Implicit risk weight floors 40,0% 35,0% 30,0% 25,0% 20,0% 22,2% 29,6% 37,0% 20,7% 27,6% 34,5% 19,4% 25,8% 32,3% 18,2% 24,2% 30,3% 15,0% 10,0% 5,0% 0,0% 13,5% 14,5% 15,5% 16,5% 3% leverage ratio 4% leverage ratio 5% leverage ratio 19

20 What capital should be included in SEB s capital structure Remains to be seen. Many considerations and rules aren t clear yet. What capital instrument provides the most value Common Equity Tier 1 ( CET1 ) High Trigger Additional Tier 1 ( AT1 ) Low Trigger Additional Tier 1 ( AT1 ) High Trigger (Tier 2) CoCo Tier 2 Capital Bail-in Debt Improve Leverage? Raise Tier 1 Capital? Improve RAC Capital? Provide Going Concern Capital? Increase Total Capital? Bail-in Capital? 20

21 Any adjustment will be from a position of strength Currently there seems to be little doubt that the market verdict is sufficiently capitalized European sovereign and individual banks 5 year senior unsecured CDS spreads EU banks' 5Y senior unsecured CDS spread, bp Allied Irish Bank Alpha Bank National Bank of Greece Banco Pastor Banco Comercial Portugues Banka Monte dei Paschi Banco Espirito Santo Banco Popolare Banca Popolare di Milano Bank of Ireland Banco Sabadell Unicredit Bankinter Intesa SanPaolo BBVA Mediobanca Sberbank Rosseii Banco Santander Royal Bank of Scotland Natixis KBC Commerzbank Credit Agricole Societe Generale Raiffeisen Barclays Erste Bank Standard Chartered Lloyds TSB BNP Paribas Danske Bank Swedbank Deutsche Bank Credit Suisse HSBC SEB UBS DnBNOR Nordea Handelsbanken 450 EU sovereigns' 5Y senior unsecured CDS spread, bp PORTUGAL SERBIA CROATIA SLOVENIA HUNGARY ITALY SPAIN TURKEY ROMANIA ICELAND RUSSIA LATVIA LITHUANIA IRELAND BULGARIA SLOVAKIA POLAND ESTONIA CZECH REPUBLIC NETHERLAN DS FRANCE BELGIUM UNITED KINGDOM FINLAND AUSTRIA NORWAY DENMARK SWEDEN GERMANY 21

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