Kommuninvest takes measures targeting forthcoming leverage ratio regulation

The Annual General Meeting for the Kommuninvest Cooperative Society, the Kommuninvest ownership association, was held on April 10 in Stockholm. On the same day, the Annual General Meeting was also held for the Society’s wholly-owned credit market company Kommuninvest i Sverige ABB. At the AGM for Kommuninvest Cooperative Society, a number of resolutions relating to the future capital build-up within the Kommuninvest Group (”Kommuninvest”) were resolved.

UNCERTIFIED TRANSLATION OF SWEDISH ORIGINAL

The collective aim of the resolutions is to prepare Kommuninvest ahead of the forthcoming introduction within the European Union of a new capital requirement, the Leverage Ratio, from 2018 (in accordance with the EU Capital Requirements Regulation and Capital Requirements Directive, CRR/CRD IV). A final decision on the design of the Leverage Ratio requirement is expected from the European Commission during 2016.

The resolutions at the Annual General Meeting of the Society concern changes to the articles of association for the Society, and are summarized below:

A reformed system regarding contribution capital from the Society’s members

A higher level of initial capital contribution from new members, applicable as of 2014. A higher level of minimum capital contribution from existing members, applicable as of 2018. Possibility for members to make additional capital contributions, providing scope for members to keep all or part of the refund they can receive from the Society, without the subsequent requirement for annual capital contribution. A ceiling level for contribution capital per inhabitant is written into the Society’s articles of association. Adjustment for changes in population to be performed every ten years.

New capital forms

Possibility to strengthen the capital base of the Society via two new capital forms: (i) voluntary participation capital (Swedish: “frivillig överinsats”) and (ii) a core capital instrument (Swedish: “förlagsinsats”). Voluntary participation capital can only be subscribed by members of Kommuninvest Cooperative Society. The core capital instrument (Swedish: “förlagsinsats”) is primarily to be offered to members of the Society, and, if the Society so desires, also to other parties.

New solution for extraordinary capital situation

If so required to meet statutory requirements on minimum capital, the Society has the right to claim payment of contribution capital up to the ceiling level for members’ contribution capital. The Annual General Meeting also resolved to issue a new perpetual subordinated loan, eligible for inclusion in the capital base according to new regulations. This subordinated loan is to replace the existing subordinated loan issued to members in 2010.

In order for the resolutions at the Annual General Meeting to become legally binding in accordance with Swedish law, the resolutions need to be repeated at the next annual general meeting, in 2015.

Ms. Ann-Charlotte Stenkil, who was reelected as Chairman for Kommuninvest Cooperative Society, said that the resolutions by Kommuninvest’s owners are important in order to be able to comply with future EU capital requirements.

– Kommuninvest is already well capitalised, in relation to both current and future capital requirements designed for the risks encountered in the operations. However, the leverage ratio requirement may define a minimum capital level set without regard for the risks in the operations. The resolutions taken today ensure that Kommuninvest has the right preconditions to be able to comply with the leverage ratio requirement. In addition, the Society’s member will be given increased flexibility on how they contribute to the capital build-up.

Ms. Ellen Bramness Arvidsson, who was reelected as Chairman for Kommuninvest i Sverige AB at the annual general meeting of the credit market company, comments the resolutions:

– One of Kommuninvest’s foremost tasks is to provide members with favorable loan terms, with no vested profit interest. Kommuninvest already fulfils this task well – it has the lowest funding cost within the local government sector and low overhead costs. The resolutions taken by Kommuninvest’s owners provide the tool that enables our low costs to be directly translated to our customers, whilst enabling the operations to be capitalised in line with the forthcoming regulatory requirements.

380 elected officials and salaried employees from Kommuninvest’s owners participated at the Annual General Meeting, held at the Clarion Hotel Sign in Stockholm.

About the future EU requirement, the Leverage Ratio

Effective from 1 January 2018, a new capital requirement – the leverage ratio – will be introduced in the EU on the condition that the Council of the European Union (EU Council) and the European Parliament agree to this after having read the report to be issued by the European Commission by 31 December 2016. Reporting of the leverage ratio to the concerned authorities shall be made as of 2014, ahead of the introduction of the requirement on 1 January 2018. Leverage ratio is a non-risk-weighted measure expressing the relation between a credit institute’s primary capital and total exposures in assets and commitments. The levels have yet to be set but may, according to an announcement by the EU Council, be differentiated depending on the institutes’ business models.

Kommuninvest’s owner directive prescribes a long-term build-up of capital to meet expected future requirements. Kommuninvest’s planning is based on being able to achieve a leverage ratio of 1.5 percent, a level that has been discussed within the European Parliament regarding low-risk credit institutions. Should a higher leverage ratio than 1.5 percent be established for Kommuninvest, additional capital measures are required, for example utilising such capital instruments mentionned in point 3 above.

About Kommuninvest

Kommuninvest i Sverige AB is owned by 278 Swedish municipalities and county councils with the purpose of supporting their financial operations through secure and cost-efficient financing, skills development and cooperation. With approx. USD 32 billion in lending, Kommuninvest is the largest lender to Swedish local governments.

For further information

Björn Bergstrand, Head of Media Relations, tel: +46 (0)10 470 87 31 alt. +46 (0) 70 886 94 76, e-mail: bjorn.bergstrand@kommuninvest.se