Englund

The Swiss lender is offering $1 billion of securities callable in April 2031 at an initial yield of about 8.375% AT1s — or contingent convertible bonds — were introduced after the financial crisis to ensure bondholders take losses first when a bank is in trouble while taxpayers are off the hook. They suffered the worst day of trading in their history in March after $17 billion of Credit Suisse notes were  wiped out  as part of the lender’s takeover by UBS. The market has since recovered Bloomberg 7 February 2024 https://www.bloomberg.com/news/articles/2024-02-07/ubs-offers-1-billion-at1s-in-fast-start-to-year-s-funding-plan The troubles in the US commercial property market moved to Europe this week The latest victim was Germany’s Deutsche Pfandbriefbank AG, saw its bonds slump on concern about its exposure to the sector.  It responded by issuing an unscheduled statement Wednesday that it had increased provisions because of the “persistent weakness of the real estate marke...

Why Credit Suisse ‘CoCo’ Bonds Are Causing Anxiety Sometimes described as high-yield investments with a hand grenade attached, CoCos are the lowest rung of bank debt.  That means that while they produce juicy returns in good times, they’re designed to be among the first to feel pain if a bank’s troubles get bad enough.  Credit Suisse got a $54 billion vote of confidence from the Swiss National Bank, but the value of its CoCos tumbled, leaving holders nursing some serious losses  Introduced after the global financial crisis, they’re essentially a cross between a bond and a stock that helps banks bolster capital to meet regulations designed to prevent failure. They’re contingent in the sense that their status can change if a bank’s capital levels fall below a specified level; they’re convertible because in many cases they can be turned into equity  Bloomberg 18 mars 2023 https://www.bloomberg.com/news/articles/2023-03-18/why-credit-suisse-coco-bonds-are-causing-anxiety...

CoCos are popular because they pay more interest than other debt, in exchange for investors being at the front of the queue to bear losses if the bank fails. In this case the coupon was 6%. Bloomberg 9 July 2020 Cocos on my website

https://www.ft.com/content/07e208dc-83ed-11e6-a29c-6e7d9515ad15

If it were a non-financial firm it would be broken up.  But big banks cannot be dismantled without risking chaos. The Economist 16 July 2016 The Stoxx 600 index of European financial institutions fell 5.6 per cent on Monday Deutsche Bank led a rout in global bank stocks FT 8 Febr 2016

Uneasy calm gives way to turbulence Credit spreads widened to a point where markets fretted about a first-time cancellation of coupon payments on contingent convertible bonds (CoCos) at major global banks. Underlying some of the turbulence was market participants' growing concern over the dwindling options for policy support in the face of the weakening growth outlook.  With fiscal space tight and structural policies largely dormant, central bank measures were seen to be approaching their limits. Full text

Banks issue a wider array of bonds than most “normal” companies. Regulation, especially after the financial crisis, has created different classes of debt that serve a variety of purposes.  Riskier bank bonds are designed in such a way that they take or “absorb” losses when financial institutions run into trouble, and they pay investors a high coupon to compensate for this risk. New rules for bank debt mean that senior unsecured debt — previously close-to-untouchable in a crisis and ranked alongside deposits — is now exposed to losses when banks fail. These new rules are being implemented in different ways in across Europe. FT 3 March 2016 Why coco bonds are worrying investors   FT February 9, 2016