Risky debt issued by several European banks in response to the 2008 global financial crisis was under sharp pressure in New York trading on Monday after regulators orchestrated a sale of Credit Suisse to UBS, triggering a historic write-down of specialty bonds in the process.
Regulators over the weekend surprised investors by writing down the value of Credit Suisse’s U.S.-dollar denominated CoCo debt to zero, as part of its sale to UBS UBS for $3.25 billion. The move has triggered turmoil in the specialty $275 billion market for European convertible bank bonds.Barclay’s 8% coupon CoCos issued March 2019 were pegged at a yield of 21.4% and price of 86 cents on the dollar on Monday, or up from a one-year low of about a 4.4% yield and roughly 107.6 price.
Bank CoCo bonds were designed in the past decade to absorb losses in times of stress, by converting to equity. As MarketWatch’s Ciara Linnane wrote, “If a bank is functioning normally, investors are paid a coupon, just like any bondholder. But if things go wrong, the bank can ‘bail in’ the CoCo investor, converting debt into shares in what would then be a troubled lender.”
European goodwill towards Switzerland engendered by the Locarno Pact and treaties, which secured Chamberlain and others the Nobel Peace Prize, lives on as exemplified in the hastily issued CoCos.
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Source: CNBC - 🏆 12. / 72 Read more »