One way to view the temporary bail-in reconversion feature is as the mirror image of a
CoCo bond.
In its pricing framework, Fitch Solutions has embedded stress tests into the methodology in order to account for the inherent systemic nature of the
CoCo bond instrument.
A
CoCo bond is a convertible bond in which the price of the underlying stock must reach a certain level before any conversion is allowed.
Global Banking News-September 4, 2014--HSBC to launch inaugural
CoCo bondCoCo bonds are alike traditional convertible bonds in that there is a strike price, which is the cost of the stock when the bond converts.
Because it has the capacity to write off the entirety of the debt, a bank can count
coco bonds as part of the capital it must hold to satisfy regulators it is stable.
While detailing its living will to the US Federal Reserve, Credit Suisse said it had a mixture of
coco bonds and loss-absorbing bonds known as TLAC.
Last month, the bank introduced 151 mln new shares that arose from the conversion of company convertible (CoCo) bonds, with only 25 mln
CoCo bonds remaining outstanding.
The investors bought the high-yield
Coco bonds (earning higher interest rate than was paid on bank deposits) in 2010 and 2011, but were outraged when interest payments were suspended, after the Greek haircut inflicted big losses on both banks, and value of the bonds fell.
Credit Suisse has issued CHF6bn of
coco bonds to current stockholders and USD2bn (EUR1.
The contingent convertible bonds-known as
coco bonds will be issued with a future coupon lower than the Tier I notes, Credit Suisse said.
For example, the total volume of Conditional Convertible Bonds, known as
CoCo Bonds, a type of hybrid security, is expected to reach EUR 200 Billion by the end of 2015.
