Article 84 determines the way minority interests must be included in consolidated CET1. According to Article 84(1)(a), the excess Common Equity Tier 1 attributable to minority interests has to be calculated over the lower of these two amounts:

(i) the amount of Common Equity Tier 1 capital of that subsidiary required to meet the sum of the requirement laid down in Article 92(1)(a), the requirements referred to in Articles 458 and 459, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU the combined buffer requirement defined in point (6) of Article 128 of Directive 2013/36/EU, the requirements referred to in Article 500 and any additional local supervisory regulations in third countries insofar as those requirements are to be met by Common Equity Tier 1 capital;

(ii) the amount of consolidated Common Equity Tier 1 capital that relates to that subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in point (a) of Article 92(1), the requirements referred to in Articles 458 and 459, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in point (6) of Article 128 of Directive 2013/36/EU, the requirements referred to in Article 500 and any additional local supervisory regulations in third countries insofar as those requirements are to be met by Common Equity Tier 1 capital.

However, Article 84 is not clear about the treatment of CET1 capital deductions, taking into account that CET1 deductions coming from a subsidiary can be different if they are calculated at subsidiary level or at consolidated level (in the same way RWA requirements can be different). The consolidation of a subsidiary could give rise to a level of additional deductions in the consolidated regulatory capital different from the ones calculated at subsidiary level.

Article 84 does not specify the treatment of CET1 capital deductions considering that CET1 deductions coming from a subsidiary could be different if they are calculated at subsidiary level or at consolidated level. Three different examples of deductions that arise at consolidated level are detailed to clarify this idea:

Goodwill

According to IFRS 3.19: for each business combination, the acquirer shall measure at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation at either:

(a) fair value; or

(b) the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets.

Consider that a parent undertaking acquires the 80% of a subsidiary. The parent company decides to pay an amount of 70 for that stake (the equivalent amount for 100% of the stake is 87,5). The net assets of that subsidiary are accounted for 60 and there are no intangible assets in the subsidiary. Goodwill arises in the consolidated statements. IFRS 3.19 recognizes two options for registering that goodwill:

a) Register the full goodwill value (87,5-60=27,5) in the consolidated statements and assign the corresponding part to the minority interests (20% * 27,5=5,5);

b) Register only the part of the goodwill value applicable to the parent company (80%*27,5=22)

It’s clear from the example, that the goodwill in the case a) above only arises in the consolidated financial statements and a part of that goodwill corresponds to minority interests.

Core Deposit intangibles (CDI) / Trademark

From an accounting point of view, in a business combination some intangible assets can arise in the PPA process (purchase price allocation), such as "core deposit intangible".

Core Deposit Intangible assets arise when a bank has a stable deposit base of funds from long-term customer relationships. CDI values derive from those customer relationships that provide a low-cost source of funding. CDIs are important for bank in an acquisition or sale, because they are the most common recorded intangible asset in a bank or branch acquisition. These intangible assets are only booked in the consolidated financial statements, but they are not included at solo level.

Core Deposits intangible are activated for the full amount, and a part of this "core deposit intangible" belong to minority interest.

The same situation should be applicable to other intangible assets that arise in the PPA process as the trademark.

Software

If we consider a subsidiary in a third country, the subsidiary will recognize in its financial statements the software only when permitted under the local accounting GAAP.

When the parent company has to consolidate its stake in that subsidiary, the group financial statements are to be performed according to the accounting GAAP applicable to the parent that could be different from the one applicable at subsidiary level.

Having this in regard, if conditions for recognition are met, software could be activated at the level of the consolidated statements. When this happens, the software is activated for the full amount and part of this software corresponds to minority interests.

It’s clear from the example, that the software could arise in the consolidated statements and a part of that software correspond to minority interests.