Question
Positive Goodlwill ie where a firm has purchased an entity above book value, is deducted from CET1 to determine the elligible capital balance. However how should Negative Goodwill be treated ie where a firm has purchased an entity at a discount? The profit on the purchase goes through the purchasing firm's P&L so does that mean negative goodwill is elligible to be included in CET1 capital?
Background on the question
Banking mergers where the use of the resolvability tools may result in an entity being sold to another organisation at a discount to book value.
Answer
This question has been rejected because it is considered that EBA guidance or clarification is not needed with regard to the issue that it raises. For example, this can be the case where it is considered that the existing regulatory framework is sufficiently clear and unambiguous, or where different practices may be possible but it is not currently necessary to harmonise these further through the Q&A process.The Single Rule Book Q&A tool has been established to provide explanations and non-binding interpretations on questions relating to the practical application or implementation of the provisions of legislative acts referred to in Article 1(2) of the EBA’s founding Regulation, as well as associated delegated and implementing acts, and guidelines and recommendations, adopted under these legislative acts.For further information on the purpose of this tool and on how to submit questions, please see “Additional background and guidance for asking questions”.