Cocos: where the EBA went wrong

Author: Gemma Varriale | Published: 10 Jan 2012

With the clock ticking down to the January 20 deadline for banks to present their plans to raise the €114.7 billion needed to recapitalise, strict limits the European Banking Authority (EBA) has imposed on contingent convertible bonds (cocos) have prompted concern over who will buy the securities.

Under the terms of the EBA’s December 8 recommendation, the temporary capital buffer instruments must be tier one, have a call option after five years, contain fully discretionary coupons and not have dividend stoppers or pushers. They must also be perpetual and convert into equity if the bank's core tier one ratio drops below 7%.

According to Stephen Roith of Sidley Austin in London, the EBA has missed an opportunity to introduce...