Download - CFA - Lux 08-10-2014
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Mouctar BahPhD Candidate
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Hybrid security:
Debt in normal times
Equity in distressed times
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What is a Contingent Convertible (CoCo)?
CoCo on Bank Balance Sheet
Assets Debt
Equity
Assets Liabilities
E Market value of equity
FFace
value of debt
VMarket value of
company
Bankruptcy
D Market value of debt
FFace
value of debt
VMarket value of
company
F
Loss given default
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The anatomy of a CoCo
Trigger
• Accounting • Regulator• Market
Conversion ratio =
ß* N/CP
• Write-down/ UP
• Equity
Conversion price (CP)
• Spot price• Inception price• Average price
4ß [0,1]∈
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Outstanding CoCos per 30/09/2014 in mio
CHF EUR GBP USD0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
Total
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Monthly issues as of 30/09/2014 (mio EUR)
Dec-09
Mar-10
Jan-11
Feb-11
Nov-11
Feb-12
Mar-12
Jul-12
Aug-12
Nov-12
Jan-13
Apr-13
May-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Sep-14
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
T2
T1
Senior
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CET1 triggers as of 30/09/2014 (mio EUR)
Senior T1 T20
10000
20000
30000
40000
50000
60000
8,125%
8,000%
7,000%
5,125%
5,000%
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Loss-absorption mechanism as of 30/09/2014 (mio EUR)
Senior T1 T20.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
Full Principal writedown
Progressive Principal writedown
Partial Principal writedown
Temporary writedown/writeup
Equity conversion
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CoCo Banks as of 30/09/2014 (mio EUR)
ACAFP
BACR
BBVASMBKIR
COVBS CS
DANBNK DB
HSBCKBC
LLOYDS
NDASS
NWID
E
NYKRE
POPSM
RABOBK
SANTAN
SOCGENUBS
UCGIM0
2000
4000
6000
8000
10000
12000
14000
16000
18000
T2
T1
Senior
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Combined Buffer Requirement (CRD4)
Maximum Distributable Amount (MDA)!!!
CB
R
CET1 = 5.125% or Regulator Decision
SNS Reaal CET1 8.8% per 3Q12
BES CET1 11,3% per 30/06/2014
As from 2015 all subs = Bail-in @PONV
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Tier 2 = Gone Concern Capital (CRD4)
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CoCo Investors (by FT)
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BofA ML poll on T1 CoCo Valuation
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T1 CoCos: Yields vs Cost of Equity
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CoCo spread vs Other high-beta FI
ECB
BES
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SANTANDER 6,25% CoCo vs Its EQUITY
FCA
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Are the current CoCo designs the solution to the “Too Big To Fail” issue??