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Brokenthoughts2 t1_jcybpf6 wrote

Correct that’s why I said it’s not “entirely” true! But it will affect the liquidity of banks hence why ECB offered to swap dollars daily as a preemptive measure.

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SeemoarAlpha t1_jcyhh02 wrote

I'd have to understand the covenants better but at first blush, it would seem these CoCos are time bombs that could very well make a bad situation worse. If holders now know they can get gutted and not just take a haircut, their first impulse would be to convert to common (dilutive) then dump their shares, thus contributing to a downward equity spiral which might spook depositors and a bank run picks up steam. Sure, the CoCos give taxpayers some bailout protection, but as you say, central banks now have to jump into the breach to help with liquidity. So unless I'm missing something, a rethink of these CoCos as contributors to Tier 1 capital should be in order.

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Brokenthoughts2 t1_jcyl5s9 wrote

Yes should be a good read, fixed income is an interesting space. No in contingent convertible bonds the bonds are only converted to equity in certain triggering events as I mentioned earlier, you as a bond holder do not have any conversion rights. It absolutely has a place in tier 1 capital but their risk return profile needs to be reevaluated considering the Swiss madness and CS management’s greed.

Additionally, they can be callable and in practice most cocos are called back after 5/10 years during periods of low interest rates.

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