AGEFI Luxembourg - mars 2024

AGEFI Luxembourg 12 Mars 2024 Economie / Banques ParVincent JUVYNS,GlobalMarket Strategist, J.P. MorganAsset Management D ans la perspective des bais- ses de taux des banques cen- trales, qui sont attendues dans le courant du second semestre, les investisseurs sont plus que ja- mais à la recherche de classes d’actifs susceptibles de leur permettre de con- tinuer à profiter des taux élevés actuels au cours des prochaines années. A cet égard, nous estimons que la detteeuropéenneàhautrendement est l’une des options qui mérite d’être considérée. Excellents fondamentaux Lesfondamentauxdecetteclassed’ac- tifs sont en effet solides puisque d’une part, 67% du marchéestnotéBB (1) ,soitl’unedesplushautenotation del’univers«hautrendement»,etd’autrepart,ellebé- néficiedufaitquelesentreprisessesontpeuendettées ces dernières années, dans lamesure où la pandémie deCovidet l’invasionde l’Ukraine les ont contraint à protéger leurs bilans. En outre, puisqu’il s’agit d’un marché à taux fixe, les coûts d’emprunt des entreprises européennes à haut rendement sont restés relativement contenus malgré la hausse marquée des taux obligataires au niveau mondial. Ainsi, le coupon moyen pondéré sur ce marché s’élève actuellement à seule- ment 4,0% (2) . Risques liés aumur de la dette La principale crainte des investisseurs au sujet du marché européen des emprun- teurs à haut rendement porte sur sa capa- cité à faire face au «mur de refinancement la dette» qui se profile, puisque 44%dumar- ché actuel devra être refinancé d’ici la fin 2026 (3) .Cependant, 65%de ladettearrivant àéchéance cesdeuxprochaines années est notée BB3, soit une notation élevée, cequi devrait permet- tre aux émetteurs de se refinancer aisément sur lesmarchés obligataires. Lahaussedescoûtsdefi- nancement devrait néan- moins entrainer une augmentation du taux défaut à environ 2,5%, soit un niveau plus élevé que l’année dernière et légèrement supérieur à la moyenne à long terme en Europe (1,6% (4) ). Dans l’univers du haut rende- menteuropéen,nouspensonsquec’estlesecteurim- mobilier qui subira les défauts les plus nombreux. Facteurs techniques positifs Les facteurs techniques ont clairement été l’un des principaux facteurs de soutien aumarché européen à haut rendement en 2023. En effet, malgré une de- mande stable, la faiblesse des émissions nettes et le grand nombre d’»étoiles montantes» (titres passant des catégories High Yield à la catégorie supérieure Investment Grade) ont nettement réduit la taille du marché. En 2024, l’offre devrait rester faible, dans la mesureoùlamajoritédesémissionsobligatairessera encore utilisée pour renouveler des obligations exi- stantes, arrivant à échéance. Du coté de lademande, nous nous attendons en revanche à ce que celle-ci se renforce en 2024 compte tenu des perspectives de baisses de taux des banques centrales. Valorisations Aprèsleurbaissefin2023,lesspreadsdesobligations européennes à haut rendement sont actuellement proches de leur moyenne sur 10 ans. Ils restent tou- tefois supérieurs à leurs homologues du marché américain, lequel présente pourtant une qualité de créditmoyenne inférieure. Enoutre, cette comparai- son des spreads historiques doit être ajustée pour tenir compte de la duration qui est actuellement ex- trêmement courte (3,6 ans jusqu’à l’échéance contre unemoyenne de 4,8 ans sur 10 ans) (5) . Enfin, les rendements globaux («all-in»), qui se situ- ent dans le 85 ème centile sur les 10 dernières années, demeurentélevés (6) .Comptetenudelaconfiguration actuelle(faibledurationetrendementsélevés),ilfau- drait une augmentation d’environ 230 points de base (7) des taux pour neutraliser le portage annualisé actuel de l’indice. Conclusion Bienque les besoins de refinancement des emprun- teurs obligataires à haut rendement vont probable- ment augmenter au cours de prochaines années et conduire à une augmentation de leurs coûts de fi- nancement et du tauxde défaut, nous estimons que la hausse de la charge d’intérêt moyenne devrait être graduelle et donc gérable pour la plupart des émetteurs. Parailleurs,lesbonsfondamentauxdesémetteursde crédit à haut rendement conjugués à une situation technique favorable, caractérisée par une offre stable etunedemandeenhausse,devraientégalementsou- tenir cesmarchés. Enfin, la perspective des baisses de taux des banques centralesetd’unatterrissageendouceurdel’économie mondiale, devraient pousser les investisseurs àprivi- légiercetteclassed’actifsafindepérenniserlesrende- ments obligataires élevés actuels. 1) Source : Bloomberg, 22 janvier 2024. Oblig. à haut rendement euro- péennes : indiceICEBofAEuroHighYield(HE00). 2)Source:Bloomberg,22janvier2024.HYEur.:indiceICEBofAEuro DevelopedMarketsNon-FinancialHighYieldConstrained(HECM) 3) Source: Banque d’investissement de J.P. Morgan : Recherche sur le crédit européen, 31 décembre 2023. Les données excluent les émissions bancairesethybrides. 4) J.P. Morgan. Données au 31 décembre 2023. L’univers de calcul des défauts repose sur le pourcentage en valeur nominale de l’univers des obligationsd’entreprisesàhautrendement(horsfinancières)enEURet GBP. Les défauts comprennent le non-paiement de coupon, les restruc- turationsetlesopérationsd’échanged’émetteursendifficulté(distressed). 5) Bloomberg, 22 janvier 2024. HYEur. : indice ICEBofAEuroDeve- lopedMarketsNon-FinancialHighYieldConstrained(HECM) 6) Bloomberg, 22 janvier 2024. HYEur. : indice ICEBofAEuroDeve- lopedMarketsNon-FinancialHighYieldConstrained(HECM) 7) Bloomberg, 22 janvier 2024. HYEur. : indice ICEBofAEuroDeve- lopedMarketsNon-FinancialHighYieldConstrained(HECM) La dette européenne à haut rendement a le vent en poupe ! By Enrique MARCHESI HERCE, Partner and Ines TEIXEIRA, Manager, Deloitte Luxembourg L uxembourg is one of the leading financial centers in Europe. The country is cha- racterized by an internationalized banking industry focused on pri- vate banking services for high- net-worth-individuals. Brexit forced foreign banks to rethink their operating model, and many re- located their opera- tions from the United Kingdom and streng- thened their presence in Luxembourg, providing them continued access to EU pas- sporting rights across Europe. Over the last few years, the banking industry has encountered various challenges, including inten- sive competition, digital transformation, and ris- ing regulatory and tax compliance requirements, which have increased the pressure on banking players to restructure their operations worldwide. Consequently, banks’ operating models and risk management frameworks are a central point of at- tention for tax authorities and regulators, with transfer pricing being one the hot topics. Operational expectations from the European Central Bank In 2018, the European Central Bank (ECB) ex- pressed concerns about how international banks would restructure their EUoperations post-Brexit and clarified that banks need to retain demonstra- ble control and oversight of balance sheet risk in the EU, including adequate level of local capital and liquidity, local risk management staff in terms of quantity and quality, as well as appro- priate local governance, IT and reporting infra- structures. (1) The ECB’s expectations cover five areas of con- cern: (i) internal governance, staffing and organi- zation; (ii) business origination and financial market infrastructure access; (iii) booking and hedging strategy; (iv) intragroup arrangements; and (v) IT infrastructure and reporting. The latter three specifically impact transfer pric- ing, where the ECB expects supervised entities to: - Not overly rely on intragroup back-to-back hedging strategies or on remote booking to/from third-country entities/branches; - Independentlymonitor andmanage risks arising from intragroup exposures and independently price and evaluate intragroup transactions; - Produce complete and accurate reports on their intragroup arrangements and booking practices on a regular and ad hoc basis. As most banks did not meet the ECB’s expecta- tions, it launched a desk-mapping review (DMR) in May 2020 (2) to assess whether banks’ EU oper- ations possess appropriate internal governance and risk management capabilities for material trading desks (3) . After identifying 264 trading desks within the scope of the review (which ac- count for €91 billion of risk-weighted assets and €4 billion of net trading income), the ECB targeted 56 desks considered to be material (representing around 40% of the risk-weighted assets) and re- quired targeted supervisory actions. The ECB defined supervisory measures and began reaching agreements with banks to imple- ment remediation measures. The right-to-be- heard period is currently underway for banks to submit their comments, and final decisions will soon be communicated by the ECB. Banks will have up to 18 months to complywith the require- ments imposed by the ECB and ensure that their material desks align with supervisory expecta- tions. (4) Overall, the findings of the DRM suggest that banks will need to boost their local riskman- agement capabilities and improve their internal governance. The ECB also confirmed that further Brexit-re- lated activities that complement the DRM in- clude, among others, assessing the proper set-up of transfer pricing arrangements, adapting banks’ internal models to European require- ments, improving funding diversification and local credit risk management, and carrying out a supervisory review of the remaining corporate and investment banking activities. Main transfer pricing considerations Over the last years, banks have increasingly fo- cused on transfer pricing, particularly when (re)defining their operating models. Going for- ward, the C-suite and in-house tax teams will need to make additional efforts to adapt the bank’s existing transfer pricing arrangements to ECB’s ongoing expectations. Transfer pricing considerations arise when parties to a transac- tion are related. (5) In these cases, the conditions and remu- neration of intragroup transactions should re- flect those set between unrelated parties in comparable circum- stances—known as the arm’s length principle. Understanding the oper- ating model and main drivers of a banks’ value chain is the first step in a transfer pricing analysis. These considerations must be analyzed on a case-by-case basis, as they vary significantly depending on the banks’ structure and core business. Although banks typically adopt structures comprising a head office and third country branches, the booking model and risk management framework, as well as the loca- tion of teams, committees andmain decision-tak- ers, may vary significantly across players. These factors are crucial for transfer pricing purposes and must be assessed in accordance with OECD standards and local transfer pricing rules and regulations. Transactions carried out between a branch and its head office, known as internal dealings, are in the scope of transfer pricing rules and are specifically covered in the report on the Attribution of Profits to Permanent Establishments published by theOr- ganization for Economic Co-operation andDevel- opment (OECD) in 2010 (the 2010 Report). The report introduces the “Authorized OECD Ap- proach” (AOA), stating that profits attributed to a branch should reflect what it would have earned at arm’s length if it were a “distinct and separate” entity performing similar functions under compa- rable conditions. Part II of the 2010 Report provides specific guid- ance for the banking sector (“Special considera- tions for applying the AOA to permanent establishments of banks”) and analyses the key- driverswithin the traditional banking business, in- cluding functions performed, assets used, and risks assumed. By using the Key Entrepreneurial Risk Taking (KERT) function terminology, the AOA describes functions relevant to attributing economic ownership of financial assets and sub- sequent income and capital (6) KERT functions require active decision-making regarding the acceptance and/or management of individual risks and portfolio of risks. For a bank, the sales/trading function involving negotiating the contractual terms, establishing the creditwor- thiness of the client and overall credit exposure qualifies as KERT function in the creation of a fi- nancial asset. For the ongoingmanagement of ex- isting financial assets, the risk management function is likely to be the KERT function as it comprises deciding to what extent the various risks should continue to be borne by the bank. The analysis to determine KERT functions needs to be performed on a case-by-case basis, as it strongly depends on the bank’s operational setup and particular factors and circumstances, such as business type (wholesale vs. retail, commercial vs. individual), product differences, and business strategies, among others. (7) Branch activities can span from creating a new fi- nancial asset (i.e., sales, marketing, trading, treas- ury, etc.) to subsequent management (i.e., administrative support, riskmonitoring, riskman- agement, treasury). However, there may be situa- tionswhere the KERT functions are performed not only at branches but also by head office teams. In this scenario, a detailed analysis of the KERT func- tions becomes even more important as the out- come will determine the (economic) allocation of the financial assets and returns between the head office or the branch. Whilst most jurisdictions ad- here to OECD standards and generally accept the AOA, this may not be the case for all countries. Some jurisdictions have introduced specific rules (e.g., on capital attribution for domestic and for- eign branches) which need to be carefully as- sessed to ensure compliance with domestic transfer pricing rules and to avoid the potential risk of double taxation. Conclusion Given the increased pressure on how banks are anticipated to structure their activities according to the ECB’s expectations, it is important to en- sure that operating models, risk management frameworks and transfer pricing arrangements, among others, are aligned with the latest regu- latory requirements and transfer pricing rules and regulations. 1) European Central Bank, Supervisory expectations on booking models, August 2018. 2) European Central Bank, Supervision Blog, “The desks mapping review – integrating Brexit banks into European banking supervision”, 19 May 2022. 3) The ECB applied a risk-based, proportionate approach to reconcile banks’ essential local risk management require- ments with the global nature of their operating models. Out of 264 trading desks scoped by the DMR, ECB qualified 56 as “material” based on the respective size of risk-weighted assets (representing more than €35 billion in aggregate) 4) European Central Bank, Supervision Newsletter, “Post- Brexit stocktake and the way forward”, 15 November 2023. 5) Art. 56 Luxembourg Income Tax Law: two enterprises are considered related enterprises where one of them partici- pates directly or indirectly in the management, control, or capital of the other or if the same persons participate directly or indirectly in the management, control, or capital of both enterprises. 6) For the attribution of capital, Part II of the 2010 Report en- visages the capital allocation approach, the thin capitalization approach or, as a safe harbor, the quasi-capitalization ap- proach. 7) Paragraphs 8 and 9, Part II of the 2010 Report. How does transfer pricing impact the banking sector?

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