Contingent Convertible (CoCo) bonds will remain an option for boosting capital at the world’s biggest banks even after the Basel Committee on Banking Supervision this month said it favoured retained earnings and ordinary shares.
“That doesn’t mean that CoCos are off the agenda,” Stefan Ingves, the governor of Sweden’s central bank and newly appointed head of the Basel committee, said in an interview in Stockholm yesterday. “There remains more work to be done on the CoCo-side; one way or other CoCos will stay on the agenda but it will be sort of an evolutionary process.”
This weekend’s decision to require too-big-to-fail banks to meet extra capital demands as high as 2.5 percentage points without resorting to CoCos was a victory for US regulators over their European counterparts. National regulators will still have the freedom to allow lenders to use the securities for meeting higher local capital standards, Basel said.
“When it comes to dealing with issues in banks, it remains a very interesting instrument but there is a lot of technical work that remains to be done,” Ingves said.
The securities, which convert into equity at a given trigger, have been criticised by Oswald Gruebel, chief executive officer of Switzerland’s biggest bank, UBS, for diluting regular shareholders’ investments.
