Just one year ago, bank capital specialists were getting ready for the big push. The objective was to persuade authorities throughout Europe to accept tax-deductible tier one securities. Victory in this battle would give every bank access to a cheaper form of core capital than equity. This hybrid tier one capital, said its advocates, would become the perfect way for banks to fund acquisitions as they turned themselves into pan-European institutions.
A year on, and the same bankers can hardly believe the scale of their achievement. "The year 2000 has been the annus mirabilis of tier one bank capital," says David Marks, from JP Morgan's financial institutions group in London. "It has been the acquisition finance tool of the year."
Between January and November, European banks issued over $15 billion-worth of these securities. Most of this issuance has been used to finance purchases, though mostly of the domestic rather than the cross-border variety. And banks in every major jurisdiction have now persuaded their authorities to let them raise this tax-advantaged form of core capital.
Since October 1998, the world's banks have been waging a war of attrition with their regulators and tax authorities. Battles are won by tweaking ever more complex structures until the authorities tire of ploughing through dummy prospectuses and allow banks to issue the securities.