How does the Argentum YOU INVEST Garant II 2015-2023 work?
The Argentum YOU INVEST Garant II 2015-2023 is a bond issued by Argentum Capital SA. The bond offers an annual interest payment of 0,5 % p.a. At maturity redemption is 100 % of the nominal value plus the positive performance of the YOU INVEST Garant Portfolio. Interest payment and redemption are bound to and collaterised by a subordinated bond of Erste Group Bank AG.
What is the YOU INVEST Garant Portfolio?
The YOU INVEST Garant Portfolio can consist of two elements:
1) YI active Spezial fund
The YI active Spezial fund invests in other investment funds to provide a dynamic mix of different asset classes (e.g. bonds, stocks, alternative investments). The portfolio is constantly monitored by the YOU INVEST experts and regularly optimized according to the current market opportunities. The management is in accordance with the comprehensible and structured investment process of YOU INVEST.
2) money market investment:
The money market investment equals the interest of EONIA ® (Euro Over Night Interest Average). This is the interest at which banks make deposits until the next day.
The weighting of the portfolio components depends on the volatility of the fund price of YI active Spezial fund and is subject not only to the risk control within the fund, but additionally also to an external risk control. The higher the volatility of the fund price, the more the portfolio is invested in the money market and the less in YI active Spezial fund. In case of low volatility the portfolio is fully invested in YI active Spezial fund. Both components always add up to 100 %. At time of issue the investment is at 100 % in YI active Spezial fund.
Who is Argentum Capital SA?
Argentum Capital SA ("Argentum") is a company under Luxembourg law. Argentum serves as issuing platform to allow customers (e.g. Erste Group Bank AG) certain payout profiles of bonds. The special assets of Argentum, to which the YOU INVEST Garant refers, consists of the subordinated bond of Erste Group Bank AG as well as a derivative with Credit Suisse, which enables the special assets to participate on YOU INVEST Garant Portfolio.
What does the suboridination of the bond mean, which serves as collateral for the Argentum YOU INVEST Garant II 2015-2023?
Subordination means that the investor in a subordinated bond is only served after all non-subordinated debt instruments (e.g. mortgage bonds, senior bonds) have been served. In case of liquidation of Erste Group Bank AG, all non-subordinated debt instruments would be paid in full and afterwards investors of the subordinated bond would receive money. Because of this risk, the interest of subordinated bonds is higher than for non-subordinated bonds.
During the term Erste Group Bank AG has the right to redeem this bond early, if this bond would no longer be eligible capital due to regulatory reasons (e.g. legislative changes) or tax reasons (e.g. change of tax laws or change of the interpretation of legal regulations).
The instruments of creditor loss sharing obligation according to the federal law on the reorganization and liquidation of banks ("BaSAG") includes measures of the Austrian Financial Market Authority for the stabilization of banks in a crisis situation. The following measures are possible:
- reduction of the nominal value of (subordinated) bonds
- conversion of (subordinated) debt to equity (e.g. shares)
- transfer of values to other corporations
If there is a creditor loss sharing obligation according to BaSAG for Erste Group Bank AG, this can lead to capital loss (also total loss of capital) for Argentum YOU INVEST Garant II 2015-2023. The repayment amount in case of early repayment of Argentum YOU INVEST Garant II 2015-2023 consists of the then current value of the subordinated bond of Erste Group Bank AG and the value of the derivative.
Possible conflicts of interest
Erste Group Bank AG has an interest to issue its own financial instruments. This interest exists particulary in the issue of subordinated bonds, which - due to the possible loss sharing obligation of the subordinated investor - may lead to an increase in the equity ratio of Erste Group Bank AG. The YI active spezial is a fund by ERSTE-SPARINVEST, an affiliated company of Erste Group Bank AG, Erste Bank der oesterreichischen Sparkassen and Sparkassen. In the fund management fees of up to 1.2 % are included. The actual total expense ratio will be higher due to additional fees.
Erste Group Bank AG may take up to 2 % commission (regardless of the sales commission) on sale of bonds by a company, which trades via Erste Group Bank AG. Therefore, Erste Group Bank AG has an interest in selling this bond. This commission can be used to cover internal expenditures (development, training, etc.).
Erste Group Bank AG is contributor for the calculation of EONIA and is therefore part of the definition of the EONIA rate.