Profit Unit

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Submitted by usr01576 on Wed, 04/14/2021 - 16:07

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Definition and characteristics

Profit Units issued by Banque Raiffeisen are securities which do not form part of its share capital. While they are similar to equity securities due to the rights they confer (e.g. voting rights on certain subjects at shareholder meetings), they also have similar characteristics to debt securities. The Profit Units are perpetual and generally
non-redeemable. If the Bank becomes insolvent or is wound up, the redemption of the Profit Units is subject to the prior repayment of the Bank’s other debts, which shows their similarities with subordinated debt.

Variable remuneration

The precise distribution rate is decided annually and cannot exceed the average of the European Central Bank’s key rate for deposit facilities over the three calendar years preceding the date of the decision of the Bank’s Board of Directors plus 4%. This payment may only be distributed if (i) there are distributable profits and (ii) the Bank’s Board of Directors decides to make such a distribution.

Issue price and price fluctuations

The issue price and nominal value of a Profit Unit is €25. This value is set by the Bank’s articles of association. The minimum amount that may be subscribed for is €1,000, equivalent to 40 Profit Units. The amount subscribed for must be paid in full at the time of subscription. The Profit Units are not listed and are not therefore subject to the uncertainties of the financial markets.

If a trigger event occurs (i.e. the Bank’s equity falls below a certain threshold, namely 5.125% of Common Equity Tier 1 - CET1), the Bank shall be required to irrevocably reduce the nominal value of the Profit Units.

Transfer and redemption

The Profit Units are non-transferable except where inherited, are also perpetual and are generally non-redeemable. Unlike the Bank’s shares, the Profit Units may be redeemed early only at the Bank’s discretion five years after their issue, subject, inter alia, to the CSSF’s prior approval. The CSSF’s prior approval is not guaranteed. The Bank reserves the right to redeem all the Profit Units under certain conditions, including in the event of a change in tax legislation.

Voting rights

Holders of the Profit Units have the right to attend the bank's shareholder meetings. However, they are only authorised to vote when the rights attached to the Profit Units they hold are affected by the resolution of the shareholder meeting. In such circumstances, each Profit Unit represents one vote.

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Submitted by usr01576 on Wed, 04/14/2021 - 17:29

Benefits

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Holders can contribute to the growth of the Bank and to the development of the regional economy;
The value of the Profit Units is fixed and independent of the financial markets. However, their value may be reduced if a trigger event occurs;
The profit Units can contribute to diversification of the investor’s portfolio in a way that is specific to cooperative banks;
Potentially interesting remuneration. This is calculated based on the ECB’s average reference rate applicable to deposit facilities during the last three calendar years, increased by a maximum margin of 4%;
Minimum outlay of 1,000 euros;
No transaction fees or custody charges.

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Submitted by usr01576 on Wed, 04/14/2021 - 17:31

Drawbacks

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There is no maturity date and the Profit Units are in principle perpetual; no redemption is possible for the first 5 years. Redemption is subject to strict conditions, without guarantee and at the Bank’s discretion;
The investor must meet certain criteria defined by the Bank;
The Profit Units are non-transferable except in the event of death;
No guaranteed returns.

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Risks linked to investing in Profit Units

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Risk of partial or total capital loss (insolvency risk) and subordination ranking

A trigger event may cause the nominal value to fall to zero. This reduced value will be the “redeemable” value if the Bank becomes insolvent or is wound up;

Holders of the Profit Units will receive repayment before holders of the Bank's shares but after the Bank’s other creditors. Holders of the Profit Units rank below the Bank’s other creditors..

Risk that returns are not guaranteed

The return on the Profit Units is subject to the existence of distributable profits, a decision by the Bank’s Board of Directors to make such a distribution, compliance with applicable regulatory requirements and the non-cancellation of that distribution as a result of a discretionary decision by the Bank’s Board of Directors to this effect, or the absence of mandatory cancellation of the distribution for regulatory reasons.