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Argentina: Banco Macro issues first hybrids under new rules

The gathering momentum in the hybrid securities market has been given another boost by the first issuance of such a structure by an Argentine bank under the country’s tier 1 capital regulations.

Banco Macro has issued a $150 million 30-year non-call 10 bond under the new laws, which permit hybrid instruments such as these to be considered as part of the tier 1 capital that banks must hold. Ordinarily a bank would have to use its equity to meet this regulatory requirement; permitting banks to use hybrid instruments as well allows them to raise cheap capital while offering investors a substantial pick-up over an issuer’s straight bonds.

“One of our challenges as we seek to re-establish a sound financial system [in Argentina] is to ensure that banks have a means of delivering long-term credit in a secure way,” says Martin Castellano, chief adviser to the governor of the Central Bank of Argentina. “The regulations under which banks can issue tier 1 capital are necessarily quite strict: they offer a pragmatic trade-off between fostering long-term finance and ensuring the safety of the financial system.”


Argentine banks looking to follow Banco Macro’s lead will have to comply with these restrictions, which include a maximum maturity of 30 years, a minimum call date of five years after issuance and the use of only one step-up in the structure. Nonetheless, the regulations offer an attractive opportunity for banks to improve their capital structure and bankers in Latin America think that more could follow Macro’s lead.

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