The confusion of whether RMBS bonds will be called has further increased. Although it is likely that entities that have received state aid are at a higher probability to not call their respective bonds, recent actions have added an element of confusion, said analysts at Barclays Capital.

Last week, ING Bank, a recipient of state aid, announced that it will be calling its LT2 bond on its call date of October 14, 2009.

The decision is in contrast to the Royal Bank of Scotland’s (RBS) announcement in the U.K. a few weeks earlier that it would not call four of its bank capital securities following regulators’ objection to the calls.

The U.K.’s Financial Services Authority (FSA) instructed RBS, the part state-owned bank, not to call the notes after the European Commission (EC) had made it clear that state aid to banks should not be used to repay equity or subordinated debt.

Following the announcement by ING, the EC explicitly stated in a press release that banks subject to a state aid investigation should consult the Commission before making announcements to the market concerning Tier 1 and Tier 2 capital transactions.

“The EC is clearly aiming to get involved in the decision to call bonds and we feel that this is likely to carry over into the RMBS world where, similarly, originators of RMBS that have not received any government aid are more likely to call their bonds,” said analysts at Barclays.

The market has already seen examples of non calls for government-supported entities, with Fortis announcing it would not be calling the Delph 2003-I transaction and the Beluga Master Issuer 2006-1 Class A1 notes on the step-up date in October 2009. A few weeks ago ABN Amro stated it would not be calling the EMS III transaction

“So we see a distinct tiering of originators that have received government aid showing an increased probability of non call of their RMBS bonds,” explained analysts. “But as mentioned, there are also two areas of uncertainty: with ING calling its bank securities and SNS Reaal having also received government aid, stating that it will be calling the HERME VI transaction.”

According to Barclays there are ongoing discussions between the Dutch state and the EC regarding state aid. “Regardless of the uncertainty, given the EC latest press release, we still feel that this tiering between those that have and those that have not will become even more apparent,” said analysts. “This issue is obviously applicable to all financial institutions where the government has provided state aid, with countries most at risk being the U.K., the Netherlands and Ireland.”


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