How CoCo bonds became indispensable for banks

9 May 2024/No Comments
By Nick Dunbar

Used by more than 80 banks in countries that now include Colombia, Mexico, Israel and Thailand, contingent convertible (CoCo bonds) have become an indispensable part of banks’ capital structure, accounting for half of Tier 1 capital at some of the largest institutions. The market grew to a total $200 billion of bonds issued by banks in dollars, euros and sterling as of March 2024, using the Risky Finance bond tool based on S&P Global iBoxx data. Just over a year ago, the near-collapse of Credit Suisse and its forced takeover by UBS, led to a controversial writedown of $18 billion of CoCos prompting a flood of lawsuits. Now, the bonds are under the regulatory spotlight, with the Basel Committee mulling whether such instruments should remain part of the bank capital structure.

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