HSBC DISCO Action Group Presses Bank for More Transparency Over DISCO Reclassification

London (ots/PRNewswire) -

A group of eight asset managers holding investments in four
issuances of DISCO bonds (Discount Perpetual Floating Rate
Securities) by subsidiaries of HSBC Holdings plc is pressing the bank
for clarification and more transparency around its decision,
disclosed in a public announcement on 4 May 2018, to reclassify these
bonds as eligible Tier 2 capital under the EU capital adequacy
regime.

The unexpected reclassification of the bonds has cut their value
by up to 20%, and the bond prices have continued to be volatile in
the wake of the announcement. The HSBC Disco Action Group represents
holders of 28% in aggregate amount of the DISCO bonds impacted; the
total amount outstanding of the bonds is just under $2bn.

Prior to the announcement on May 4, and since 1 January 2014,
these bonds had been classified by HSBC as grandfathered Tier 2
capital under the EU Capital Requirements Regulation (CRR), but
ineligible as Tier 2 capital upon full implementation of the CRR from
January 1, 2022.

HSBC's action in reclassifying the bonds as eligible Tier 2
capital under the CRR is at odds with most other major European banks
who have assigned (and continue to assign) a more conservative
capital adequacy treatment to their similar old-style floating rate
subordinated bonds (i.e., ineligible as Tier 2 capital from 1 January
2022), or have chosen to redeem them.

In letters to HSBC, the Action Group highlighted that, in
addition to the confusion caused by the unexplained reclassification
of the bonds, the continuing existence of the bonds was potentially
at odds with the policy statement of the Bank of England's Resolution
Unit published on June 13, 2018, which encourages banks to redeem
old-style perpetual floating rate instruments issued by operating
subsidiaries of bank holding companies, such as these bonds, because
they may present a barrier to resolution, and, thus, frustrate
attempts to ensure that taxpayers are not forced to bail out banks
which are "too big to fail".

The Action Group highlights that HSBC has failed to provide any
meaningful rationale for the reclassification, or to explain whether
these bonds are intended to be included among debt capable of being
bailed in as part of a resolution strategy, despite several requests
made to HSBC over the past twelve weeks.

It calls on HSBC to take the earliest opportunity to update the
market to explain and justify the reclassification of the DISCO bonds
from a capital adequacy point of view, and to explain to the market
whether it intends these bonds to be treated as liabilities eligible
for inclusion in the minimum requirement for own funds and eligible
liabilities (MREL) under the EU Bank Recovery and Resolution
Directive and, therefore, subject to the risk of bail-in.

Although the Action Group recently received one response from HSBC
in relation to their concerns, the response was short and perfunctory
and did not substantively address the concerns raised by the Action
Group, or other s more broadly, since the announcement was made on 4
May.

The Action Group is being advised by Akin Gump LLP, the US law
firm.

Details of the bond holdings

The action group's holding

Per issuance:

1. ISIN GB0005902332 (US$750m): c25%

2. ISIN XS0015190423 (US$500m): c25%

3. ISIN GB0005903413 (US$300m): c38%

4. ISIN GB0004355490 (US$400m): c29%

ots Originaltext: HSBC DISCO Action Group
Im Internet recherchierbar: http://www.presseportal.de

Contact:
Caroline Merrell
Toby Mountford
Christen Thomson
+44(0)20-7638-9571

Original-Content von: HSBC DISCO Action Group, übermittelt durch news aktuell