Frankfurt (Reuters) – The European Central Bank (ECB) will apply favorable regulatory treatment to the insurance activities of banking groups in terms of solvency ratio on a case-by-case basis, Claudia Buch, chair of the ECB supervisory board, said on Tuesday .
The Danish compromise, a regulatory system making it possible to reduce the capital cost of the insurance activities of banking groups by avoiding double accounting of the capital requirements of the two activities, is one of the drivers of certain merger-acquisition operations recently carried out, like the takeover of AXA Investment Managers by BNP Paribas or the offer by Banco BPM for Anima Holding.
Using the Danish compromise makes acquiring a fund manager much less capital intensive by allowing banks to risk weight their insurance investments instead of deducting them entirely from their equity.
The two transactions on AXA IM and Anima are based on an extensive interpretation of the Danish compromise which bankers and analysts say gave ideas to other players.
“We currently have a new guide in consultation which clarifies our approach, but, ultimately, this is also a question that we will evaluate on a case-by-case basis for individual institutions,” Claudia Buch told a conference of press.
The ECB has launched a consultation on its regulation relating to the application of options and discretions provided for by European Union law.
The Danish compromise was introduced during the Danish presidency of the European Union more than a decade ago to temporarily compensate for the strict “Basel” rules for European banks with insurance activities.
In April, the European Parliament approved a regulation that makes the Danish compromise permanent. A regulatory clarification subsequently indicated that the favorable treatment could apply not only to insurance businesses owned by banks, but also to assets that banks purchase through their insurance units. However, it is the ECB which has the last word on the matter.
BNP is carrying out the acquisition of AXA IM through its insurance activity BNP Paribas Cardif just like Banco BPM which made an offer for Anima through its insurance subsidiary Banco BPM Vita.
Andrea Filtri, analyst at Mediobanca Securities, calculated that the acquisition of AXA IM for five billion euros, without the Danish compromise, would cost BNP Paribas 65 basis points of capital compared to 25 basis points taking into account this device.
(Written by Francesco Canepa and Valentina Za; Bertrand De Meyer, edited by Blandine Hénault)
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