Why ‘coco’ bonds may not be as sweet for investors as once thought
Concerns have been raised about the risks of investing in ‘coco’ bonds (contingent convertible bonds). Many private investors may not have been made fully aware of the serious risks that these types of bonds involve.
Over the last three years, a new form of financial security has emerged in response to regulators’ demands that banks position themselves to better absorb losses during a crisis (rather than expect the taxpayer to bail them out). Known variously as bail-in bonds, hybrid bonds, wipe-out bonds and contingent convertible bonds, trades in these securities have reached €75bn (£60bn) on European markets and are predicted to reach €100bn by the year’s end.
As European banks prepare themselves for the impending stress testing of Basel III, coco bonds have provided a cheap means of improving the banks’ tier-one capital ratios. Banks are required to hold a proportion of their risk-weighted assets in the form of tier-one capital (comprising common equity and retained earnings) so that losses will fall on shareholders rather than creditors. Coco bonds, costing roughly half the return on equity demanded by shareholders with the benefit of tax-deductible interest, appear to be a win-win for both banks and regulators…
Click on the link below to read the rest of the Collyer Bristow briefing.
Sign in or Register to continue reading this article
It's quick, easy and free!
It takes just 5 minutes to register. Answer a few simple questions and once completed you’ll have instant access.Register now
Why register to The Lawyer
In-depth, expert analysis into the stories behind the headlines from our leading team of journalists.
Identify the major players and business opportunities within a particular region through our series of free, special reports.
Receive your pick of The Lawyer's daily and weekly email newsletters, tailored by practice area, region and job function.
More relevant to you
To continue providing the best analysis, insight and news across the legal market we are collecting some information about who you are, what you do and where you work to improve The Lawyer and make it more relevant to you.
News from Collyer Bristow
News from The Lawyer
Briefings from Collyer Bristow
The starting point on divorce is to divide equally all the assets acquired during the relationship but, as usual, the devil is in the detail.
Did Dylan Thomas give Under Milk Wood away?