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The Swiss Killed The CoCos
"Put on your big boy pants."
That was Jeff Gundlach's advice to disgruntled "gunslingers" who bought Credit Suisse's CoCos. Even if you agree with the sentiment, someone wearing "big boy pants" doesn't generally use the term "big boy pants."
As part of the shotgun wedding with UBS, Finma wrote Credit Suisse’s additional Tier 1 capital down to zero. As I put it Sunday, "some bondholders will be wiped out here, and that may trigger its own mini-crisis, depending on how loudly it reverberates."
I would not want to own bank subordinated debt now. It’s the wild west now.
Thanks for the explanation. Those AT1s are CoCos then… as you said, the buyer was essentially selling a put of sorts to pick up a little more yield.
Ah well, for a long time worrying about the covenants and lack thereof was a fool’s errand, But no one pays you for nothing.
Equity ahead of debt? Billions in uninsured deposits suddenly covered with zero haircut?
“When logic and proportion
Have fallen sloppy dead
And the White Knight is talking backwards…”
(Go ask Alice)
Huge Airplane fan. But in this case, these were/are not true bonds. They are a hybrid designed to make capital raising less onerous for other bondholders and shareholders.
How many other “cov-lite” bonds are lurking under the surface or in portfolios? For a long spell, they were very common in the corporate bond world.
derek – I understand (somewhat) the hybrid nature of these – but, still, they undeniably should be above straight equity (even preferred?) in the capital structure hierarchy, no? Or do I not know even more than I know I don’t know….?
+1