4.1 Specific considerations for each transfer tool

If a resolution strategy includes the SoB tool, resolution authorities should evaluate, as part of the resolution planning, the execution risk of asset and share deals⁸ and consider the least intrusive transaction that achieves best the resolution objectives in compliance with paragraphs 10 to 15.

⁸ A share deal consists in a transfer (as defined Article 63(1), point (c), of in point (c) of Directive 2014/59/EU) of instruments of ownership (as defined in Article 2(1), point (61), Directive 2014/59/EU) to a recipient (as defined in Article 2(1), point (80), Directive 2014/59/EU), while an asset deal is a transfer (as defined Article 63(1), point d, of Directive 2014/59/EU) of assets, rights and/or liabilities to a recipient (as defined in Article 2(1), point (80), of Directive 2014/59/EU).

For share deals, institutions should analyse how the transfer perimeter attracts market interest given the aim to maximise, as far as possible, the sale price for the transfer perimeter, considering recovery planning work, comparable transactions, valuation references or market trends. Institutions should then communicate the outcome of this analysis to the resolution authorities, in order for them to factor it in their transferability assessment in the context of resolution planning. This assessment should consider, when available, the activities, business model, financial performances, client relationships, distribution channels and geographic breakdown of the transfer perimeter.

For asset deals, institutions should analyse the extent to which the transfer perimeter attracts market interest, by considering additional items that would make the perimeter more appealing to the purchaser, including cash, other liquid assets and performing loans. They should then communicate the outcome of this analysis to the resolution authorities, in order for them to factor it in their transferability assessment in the context of resolution planning.

In line with paragraph 11 of these guidelines, institutions should help identifying available opportunities to improve the transfer perimeter definition with the aim of facilitating the implementation of the transfer. In particular, institutions should consider whether the transfer perimeter could be simplified in order to reduce the execution risks in resolution. Institutions should also consider options to be applied to the transfer perimeter definition in order to maximize the success of the transfer such as guarantees on a portfolio of assets (Article 101(1), point (a), of Directive 2014/59/EU) or “carve - outs” of certain unwanted assets, rights and/or liabilities that are not needed for the continuity of critical functions and/or core business lines, leveraging on the identification of transfer perimeter units as per paragraph 21.

Institutions should also analyse the market capacity to absorb the transfer perimeter, assessing the existence of third-party investors with sufficient funds, in case of credit institutions with excess capital and/or sufficient market access, previous integration experience and fit with regards to competition and strategic considerations. Insitutions should then communicate the outcome of this analysis to the resolution authorities.

Resolution authorities should leverage on the exercise described in paragraphs 18 and 25 of the guidelines above to consider the possibility of different potential acquirers for different parts of the transfer perimeter according to the markets concerned, their absorption capacity or the geography of the activities, in order to maximise the chances of success of the transfer strategy and support resolvability. Where necessary, in line with Article 39(1) of Directive 2014/59/EU, resolution authorities should consider the division of the transfer perimeter into units in order to better tailor the resolution strategy to the unforeseeable conditions of resolution and the different possible scenarios to be tested.

To the extent possible and in order to further enhance resolvability, institutions should analyse the potential perimeter shifts that could arise while the ins titution’s business is evolving and the economic conditions are changing, and communicate the outcome of this analysis to the resolution authorities. Structural changes and predictable impacts should be considered as much as possible. As a minimum, the impact of recovery options on the assets, rights and/or liabilities eligible to the core (first layer) transfer perimeter based on paragraphs 13.a, 19 and 20 above, of these guidelines, should be considered.

4.1.2 Bridge Institution (BI)

Resolution authorities should consider the objectives and the exit strategy of the BI, given the scenario considered, when setting the methodology for the definition of the perimeter to be transferred to a BI, subject to paragraphs 10 to 13 of these guidelines. In particular, the core (first layer) transfer perimeter may be defined differently if the BI is set up to further implement the required separation within the institution, or to collect assets, rights and liabilities from different institutions subject to resolution in accordance with Article 40(1) of Directive 2014/59/EU, or if the BI is to be sold as a whole or in pieces in line with article 41(2) of Directive 2014/59/EU.

Institutions should support resolution authorities by testing the applicability (under paragraph 12(b) and 15 of these guidelines) of the transfer perimeter definition, supporting the execution risk assessment, advising on potential enhancement of the transfer perimeter and assessing the market appetite and capacity to absorb the transfer perimeter. This contributes to having resolution authorities maximising the marketability of the BI and support the choice of this resolution tool in resolution plans.

Institutions should assess the risk profile of the transfer perimeter eligible assets, rights and liabilities and support resolution authorities’ evaluation of their compatibility with the viability of the BI, which is meant to continue the provision of critical functions. Ultimately, the risk profile (including credit risks, market risks or operational risks) of the transfer perimeter should not jeopardise the viability of the BI before it is subject to the sale process.

Should the BI be designed to support only one institution, the institution should support the resolution authority when assessing the capital and liquidity position calibration of the transfer perimeter, ensuring that the value of the liabilities, in line with Article 40(3) of Directive 2014/59/EU, does not exceed the value of the assets transferred from the institution under resolution or provided by other sources, and the resolution authority should assess the impact of the transfer perimeter on the capital and liquidity positions of the BI. Similarly, in order to ensure a balanced liquidity position of the BI, the maturity profile of the assets should be in line with the maturity of the liabilities and specific attention should be given to the total interest rate weighting on the liabilities as compared to the total interest rate stemming from the assets.

In order to further enhance resolvability, institutions should support resolution authorities to assess the potential perimeter shifts similarly to the principles laid down in paragraph 22 of these guidelines likely to affect the transfer perimeter as defined in paragraphs 13.a and 23 to 26 of these guidelines.

Resolution authorities should consider the conditions under which transfers back to the institution would be necessary and/or advantageous with regards to the resolution strategy. This consideration should apply at the level of the transfer perimeter unit.

Resolution authorities should consider whether it is feasible to operate a share deal under the exercise of BI.

4.1.3 Asset Separation Tool (AST)

Institutions, based on the information communicated by resolution authorities, should flag to authorities the assets, rights and/or liabilities that meet the conditions of Article 42(5) of Directive 2014/59/EU and the principles laid down in EBA guidelines on the asset separation tool⁹ in order to examine to which extent the AST can be applied as per Article 12(3), point (b), of Directive 2014/59/EU.

⁹ EBA guidelines on the determination of when the liquidation of assets or liabilities under normal insolvency proceedings could have an adverse effect on one or more financial markets under Article 42(14) of Directive 2014/59/EU (EBA/GL/2015/05).

Institutions, based on the guidance from resolution authorities, should identify items to be included in the transfer perimeter so that they fit with the assets management company’s (AMC) characteristics as defined by resolution authorities. In this vein, in accordance with Article 42(5), point (c), of Directive 2014/59/EU, resolution authorities should assess whether the transfer is necessary to maximise liquidation proceeds, therefore the AMC business model and exit strategy should not be disregarded. In particular, resolution authorities should ensure that:

• - the transfer perimeter is in line with the AMC business model, if already set up, or consider the business model of an AMC to be set up. AMCs can be designed to be single-asset focused or specialised in a geographical area;
• - especially in the case of an AMC that is expected to absorb portfolios and activities from different institutions, there is coherence between the transfer perimeter and the disposal strategy ensuring the maximisation of the liquidation proceeds, avoiding the destruction of value and triggering scale effects;
• - the transfer perimeter allows, as much as possible, the AMC to reach a critical size in order to benefit from economies of scale. Ideally, the critical size should remain within the proportions of the market in which it operates;
• - the transfer perimeter puts the AMC in a position to recover a long-term value greater than the market value at the valuation date in line with paragraph 32 of these guidelines, which means that portfolios with negative long-term prospects should be considered carefully.

Resolution authorities should set out a methodology for the institutions to structure the transfer perimeter destined to the AMC under the AST in such a way that the long-term value of the perimeter is above its market value, in order to avoid the destruction of value, minimise the cost of resolution and protect public funds (Article 31(2) of Directive 2014/59/EU). The long-term value can be estimated based on the current market value for performing portfolios. However, the issue arises for impaired or non-performing portfolios, in which cases the authorities should assess the perspectives of improvement for the concerned portfolios and markets derived from available market analyses, leverage on the supervisors’ assessment and assess potential combinations with performing assets (combination of different units as per paragraph 15 of these guidelines) to positively impact the overall profile of the transfer perimeter.

In order to further enhance resolvability, institutions should support resolution authorities to assess the potential perimeter shifts as laid down in paragraph 22 of these guidelines susceptible to affect the transfer perimeter.

Resolution authorities should consider the conditions under which transfers back to the institution would be necessary and/or advantageous with regards to the resolution strategy. Said consideration should apply at the level of the transfer perimeter unit.