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Contingent capital: Basle and FSB decisions not death knell for CoCos

Potential market hit hard; Market impetus moves to investor pull

The Basle Committee’s decision in June to disallow the use of contingent convertible (CoCo) bonds to meet capital buffer requirements for systemically important financial institutions (Sifis) came as a nasty surprise to many banks that had invested time and resources in the new instruments.

None had invested more of either than Credit Suisse, which sold its breakthrough $2 billion buffer capital note transaction in February. But the Swiss bank stands by its commitment to the asset class, believing that there is still sufficient market pressure for it to grow.

"In an ideal world, it would be nice if somebody else was always willing to take the lead in developing new products," Wilson Ervin, senior adviser to chief executive Brady Dougan at Credit Suisse in New York, tells Euromoney. "But in this case – given the framework in Switzerland – we thought it important for us to take the lead and show that CoCos can be issued in size and at a reasonable cost. I think our deals proved that."

Leading player

Credit Suisse has been one of the leading players in the development of the CoCo market and the Basle Committee’s position, which was approved by Financial Stability Board chairman Mario Draghi on July 18, will have come as a blow.

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