Customer Glossary

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  • 1. CET1

    Common Equity Tier 1 is the highest quality of capital, comprised of the bank’s equity (share capital plus retained earnings)

  • 2. Upper Tier 2

    Upper Tier 2 instruments are junior subordinated debt securities issued by banks to fulfill regulatory capital requirements under old European banking regulation (Basel II). To qualify as Upper Tier 2 capital, the instruments needed to be perpetual, have discretionary but cumulative coupons.

  • 3. Basel III

    Basel III are a set of regulatory requirements put in place by the Basel Committee in 2010. The standards of these regulation set the minimum capital requirements for the banking sector.

  • 4. Solvency II

    Solvency II are a set of regulatory requirements put in place by the EU in 2009. The standards of these regulation set the minimum capital requirements for the European insurance and reinsurance companies.

  • 5. Extension Risk

    The risk of a bond not to be called at the first date.

  • 6. FRN

    Floating rate notes (FRN) are bonds with a floating coupon periodically reset.

  • 7. Fixed to Floater

    Fixed to Floaters are bonds with an initial fixed coupon which becomes floating at the end of the fixed rate coupon period

  • 8. NPS

    Non Preferred Senior are senior dated securities that can be written-down or converted into equity in case of bail-in.

  • 9. Low trigger

    Referring to the level at which an AT1 coco can be written down or converted. A low Trigger is a bond that gets written down or converted at at CET1 ratio falls to below 5.125%.

  • 10. High trigger

    Referring to the level at which an AT1 coco can be written down or converted. A high Trigger is a bond that gets written down or converted at at CET1 ratio falls to below 7%.

  • 11. Equity conversion

    When a bond gets converted into ordinary shares

  • 12. Write down

    When a bond in breach of his trigger gets written down. Write down can be temporary or permanent.

  • 13. Cumulative/Non Cumulative

    Upon non-payment of a coupon: A cumulative bond means that the skipped coupon will be accrued and needs to be paid at a later date, a non-cumulative bond means that if a coupon is skipped that it is be lost.

  • 14. YTW

    Yield to Worst is the lowest yield between the Yield to Call and the Yield to Maturity of a bond

  • 15. YTC

    The yield to call is the calculated yield of a bond to the next call date.

  • 16. YTM

    The yield to call is the calculated yield of a bond to its maturity.

  • 17. Modified duration

    Duration is a measure of a bond’s price sensitivity to changes in interest rates.

  • 18. Spread Duration

    Spread duration is a measure of a bond’s price sensitivity to changes in spreads.

  • 19. OA Duration

    Option Adjusted Duration is a measure of a bond’s price sensitivity to changes in interest rates accounting for the optionality on the underlying bond.

  • 20. Issue Rating

    The Credit Rating of a specific bond.

  • 21. Issuer Rating

    The Credit rating of a specific issuer, this is often the same rating as senior bonds from that issuer.

  • 22. IG

    Investment Grade reflects the credit rating of BBB- or higher.

  • 23. NR

    Non Rated.

  • 24. HY

    High yield reflects the credit rating of BB or lower.

  • 25. Subordinated debt

    Debt that sits between the company’s senior debt and equity. In case of default, subordinated bondholders get paid after senior bondholders but ahead of equityholders.

  • 26. Senior debt

    Debt which stands on the higher end of the Capital Structure. In the event of company defaults, senior debts usually gets paid to the lenders first.

  • 27. Capital Structure

    Combination of debt and equity that is used by the company to fund its operations.

  • 28. Asset Type

    Grouping of bonds by their coupon structure and features.

  • 29. QE

    Quantitative easing is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity.

  • 30. PPP

    Pre Provision Profit (used for banks), profits before taxes and loan loss provisions.

  • 31. LLP

    Loan Loss Provisions, amount set aside by banks for current and potential credit losses.

  • 32. Spreads

    The difference between a bond’s yield and the risk-free yields (i.e. government bonds or swap rates). How much bondholders are compensated for the specific risk of the bond.

  • 33. TLAC

    Under Basel III, G-SIBs need to company with Total Loss-Absorbing Capital requirements, which is made of total capital plus bail-inable senior (NPS or HoldCo senior).

  • 34. MREL

    Under Basel III, European banks need to company with MREL requirements (Minimum Requirement of Eligible Liabilities), which made of total capital plus bail-inable senior (NPS or HoldCo senior).

  • 35. NPL

    Non-performing loans, the amount of loans on a bank’s balance sheet where the borrower has defaulted (typically past -due for 90-days or more).

  • 36. Plain Vanilla Bond

    Bond with a fixed coupon rate.

  • 37. Tail Risk

    The risk of an investment loss occurring to a specific/rare event mostly predicted by probability distribution. Usually the term tail risk is used when a specific asset/instrument shows probability of moving more than 3 standard deviations from the mean.

  • 38. Beta

    The beta of a specific instrument is a measure of its sensitivity to a benchmark/market as a whole. The beta calculation allows investors to understand in what direction a security will move compared to markets and also by how much.

  • 39. G-Spread

    The Nominal spread is the difference between the yield of a specific instrument with its corresponding government treasury note assuming that the treasury bond is a risk free asset.

  • 40. I-Spread

    The Interpolated Spread is the difference between the yield of a specific instrument with the linearly interpolated yield for the same maturity on an appropriate reference yield curve.

  • 41. Z-Spread

    The Zero-volatility Spread is the spread that makes the PV of the bond = to its price (i.e. discount each future CF at the correct risk free rate z-spread).

  • 42. Solvency II Ratio

    Solvency ratio expresses the capital owned by the company compared to the minimal required capital.

  • 43. EBITDA

    Earnings Before Interest taxes, depreciation and amortisation.

  • 44. Leverage ratio

    The Leverage ratio is calculated as Tier 1 Capital (CET1 AT1 CoCos/Tier 1 bonds) divided by the leverage exposure (total assets plus off-balance sheet exposures).

  • 45. RWA

    Risk Weighted assets are used in determining the capital requirement of banks (denominator). Calculated as the sum of the bank’s assets weighted for the risk of the assets (with a higher weight to higher risk assets).

  • 46. SREP

    Supervisory review and evaluation process. This is a harmonized framework which is used to determine the capital adequacy and viability for Eurozone banks. This process is used to set banks’ pillar 2 capital requirements.

  • 47. HQLA

    High Quality Liquid Assets which are high quality assets that can be readily converted to cash. Examples of such assets include: Cash deposits, highly rated treasury notes etc…

  • 48. Corporate Hybrid

    Corporate Hybrid are subordinated debt instruments issued by corporates.

  • 49. G-SIB

    Global systemically important banks.

  • 50. Maturity

    The date at which the principal amount of a bond has to be paid back to his investors.

  • 51. Callable

    Feature on bonds that allow the issuer repay the bond ahead of its final maturity

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