Risk premium proposed for Swiss Coco Bonds – due to distrust

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With the acquisition of CS, 16 billion worth of AT1 bonds, also known as Coco bonds, were wiped out. The puller was the Swiss Financial Market Authority (Finma). Unlike CS shareholders, investors in Coco Bonds suffered a complete loss.

Finma’s action caused a worldwide nod. Investors are questioning the entire Coco Bonds market. The result was a real sale. The Financial Times (FT), meanwhile, writes that prices have recovered somewhat.

Is the Swiss risk worth it?

However, distrust in Switzerland remains high. Mark Holman, CEO of investment firm TwentyFour Asset Management, told the FT: “Some people won’t buy Swiss risk because they don’t trust the regulatory background.”

Analysts from JPMorgan have even suggested introducing a legal risk premium for Switzerland. Because the breach of trust in Coco-Bonds primarily concerns the Swiss market.

Private investors are also affected by the write-off, as Coco Bonds are sold in Switzerland at 5,000 francs. Just like Nick Vogel* (67): Losing 200,000 francs with Coco Bonds for exposing Blick.

High risk, high interest rates

There is high interest for high risk in Coco Bonds. If the core capital ratio of the bank falls below a certain value, the bonds can be converted into stocks in a short time. An interest-bearing loan is then converted into stock. This means in the case of a crashed company: the money is gone.

Banks launched Coco Bonds after the 2008 financial crisis to meet regulatory single capital requirements. The problem with CS: Layout. Banking experts assumed that in the event of a crisis, ordinary shares would first be included in the bank’s declining equity and only then Coco Bonds would be included. Finma did just the opposite. It saved shareholders 25 cents per share, and Coco left the bondholders empty-handed.

That’s why the federal government has already received two lawsuits, as the Department of Finance (EFD) reported to the SDA news agency. The federal government is also aware that other investors are investigating the cases.

So are about 30 investors from Singapore, according to the financial portal Finews.ch. The group is based on a free trade agreement. This mandates that foreign investors from Singapore are treated “fairly and fairly”.

Warn other countries

Other countries are using the event to gain the trust of investors. Both the European Central Bank and the Bank of England assured investors that Finma’s decision would not set a precedent, but would be an exception.

No major global bank has issued Coco Bonds since CS collapsed. The prices of current bonds are well below the level at the beginning of the year.

Source :Blick