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Erste Group subordinated bonds

What are subordinated bonds?

Subordination means that the investor's claims of a subordinated bond will be settled only after all non-subordinated debt securities (such as covered bonds, non-subordinated / senior bonds) have been settled. If, therefore, the issuer should be liquidated, all non-subordinated debt would be fully paid out first and subordinated bonds would be settled thereafter. Due to this risk, the yield on subordinated bonds is higher than on non-subordinated bonds.

How do subordinated bonds work?

A subordinated bond is interesting for you if you want to achieve a higher return compared to non-subordinated bonds. The creditworthiness of the issuer is essential. Redemption is at 100% of the nominal amount if no early redemption due to legal or tax changes and no statutory loss participation obligation takes place beforehand. For early redemption, the redemption amount is also 100% of the nominal amount.

The loss-sharing obligation includes future measures by supervisory authorities to stabilize banks in a crisis situation. From today's perspective, the following measures are possible: reduction of the nominal amount of (subordinated) bonds; conversion of (subordinated) bonds into equity (e.g. shares); transfer of values ​​to other companies. The loss-sharing obligation is part of the discussions of the regulators (EU, Republic of Austria, FMA, Basel Committee on Banking Supervision "Basel III") regarding the handling of banks which are insolvent or where insolvency is imminent. The regulatory changes are not exactly defined yet but may interfere with the rights and obligations of investors through the measures described above or even to a bigger extent. This risk is compensated with a higher interest rate than for non-subordinated bonds.


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