About equity certificates
The equity certificate is an equity instrument developed by the savings bank industry in Norway. The first equity certificates were introduced in 1988. Before 1 July 2009, equity certificates were called primary capital certificates. Sparebanken Vest's equity certificates are traded on Oslo Børs and have the ticker symbol “SVEG”.
Equity certificates are an important part of a savings bank’s capital structure and share many characteristics with shares in Norwegian limited companies. Among other things, the two instruments are treated the same for tax purposes.
The main differences are related to the owners' rights to the bank's assets and influence over the bank's governing bodies.
The savings bank’s total equity structure is divided into two parts: the primary capital and the equity certificate capital.
The primary capital (which is “owned” by the society) consists of the original capital in the bank and the retained earnings accumulated on this capital over the years. In the balance sheet, these are reflected in the following three funds: the primary capital fund, the gift fund and the compensation fund. Part of the primary capital can be converted into equity certificate capital, as Sparebanken Vest did in late 2019.
The second type of equity is the equity certificate holders' equity. This equity consists of paid-up capital, subsequently added return or profit, and any dividend equalisation fund and equity premium reserve. In the balance sheet, these are reflected in the three reserves: the equity certificates, the premium reserve and the equalisation reserve.
Across the primary capital and equity certificate capital, these six funds or reserves make up the savings bank's equity.
The funds are structured in a three-level priority hierarchy. On the lowest level, and the first level to absorbe losses, is the equalisation reserve, primary capital and gift fund. The second level is the compensation fund and the premium reserve. The equity certificates have the highest priority, and each "level" will cover losses according to the proportional size of the funds at that level. Losses must be fully covered at one level before moving on to the funds higher up in the hierarchy.
As a main principle, the profits are distributed proportionally amongst the primary capital and the equity certificate capital.
Compared to a regular limited liability company, the equity certificate holders do not vote directly in the General Meeting. The owners of equity certificates elect representatives to vote for them in the General Meeting. According to the Norwegian Financial Institutions Act, the equity certificate holders shall represent between 20% to 40% of the representatives in the General Meeting. The rest of the voters consist of depositors, publicly-appointed voters and employees. This entails that the equity certificate holders may have less representation in the general meeting than their equity certificate ratio implies. The composition of the General Meeting is further regulated in the Articles of Association.
Read more about equity certificates on the Norwegian Savings Bank’s Association website (in Norwegian)