Response to consultation on draft Regulatory Technical Standards on valuation
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We expect that in the event of resolution, there will be considerable uncertainty and the “assessed market price” could be influenced heavily by illiquidity in the market. As a result of this we believe that market value would be very challenging to estimate and the reliability of valuations could be called into question.
Question 2: Should specific types of information be required on deviations from management assumptions, for example on differences in expected cash flows and/or the discount rates?
We agree that, where fundamental assumptions have changed, it is reasonable to expect these to be explicitly identified in communication with the market and other stakeholders. However, we would suggest that these are not made overly specific otherwise banks may be forced to disclose information that is irrelevant.Question 3: Would you add, amend, or remove any areas which are likely to be subject to significant valuation uncertainty?
We agree that by wording in the form “likely to include, but not limited to”, means that this does not have to be a comprehensive list. “Deferred Tax” and “Pensions” are other areas that could be added further examplesQuestion 4: Should the buffer instead always be greater than zero? If yes, how should the buffer be determined?
We consider that, in the absence of facts and circumstances supporting the existence of additional losses, the buffer shall have a value of zero. If the valuations impose sufficient additional discount, especially with regard to the exit valuation, then no additional buffer would be appropriate. The provisional valuation should provide clarity where subjective judgement has been used, and the basis for approximating any discount.Question 5: Do you agree that a valuation of post-conversion equity is necessary to inform decision on the terms of write-down or conversion?
Yes, the equity value, being an estimate of the market price for those shares that would result from generally accepted valuation methodologies informing the determination of the conversion rate or rates, is necessary to assure all holders of converted instruments of fair and equitable treatment.Question 6: Do you agree with the definition of equity value for this purpose in Article 2 (i)? If not, what changes should be made to the definition? Should the definition be more closely linked to the net asset value determined on the basis of the remainder of valuation 2 adjusted for goodwill/’badwill’, and if so how should that adjustment be estimated?
See response to Q1(i).We expect that in the event of resolution, there will be considerable uncertainty and the “assessed market price” could be influenced heavily by illiquidity in the market. As a result of this we believe that market value would be very challenging to estimate and the reliability of valuations could be called into question.