CoCo Bonds – Contingent Convertible aka AT 1 Bonds – Advanced Analysis Part 3 of ? BREAK IN: Do NOT add to a Bank Run – Easier than you think to Accidentally Do!



At a welcome home family dinner last night, the fact that causing a Bank Run is illegal was brought up . Huh?

Yes it is basically illegal to cause harm to a Bank…. aka create a Bank Run… In today’s Social Media frenzy, this could come in the form of a like, sharing a post or forwarding something to a person of influence .. YIKES…

This is getting LOOOONG… so here is the cliff note version: Coco bonds are European instruments (Not USA) with weird exercise rights that can evaporate an investors money if a Bank gets in trouble. These clauses have been invoked already on a European bank, causing renewed knowledge of these instruments and their weird rights.

Back to our Regularly Scheduled Post

One of the absolute favorite things about the Financial world and our industry is the vast amount of diverse products, structures, programs and for that matter super cult like popularity of instruments that come and go throughout the space of time…. all of which make for constant learning- just continuous!.

Our advanced analysis series is meant to cover very complicated items for our high level collective knowledge…. This is a HEAVY one, just as a heads up!

Advanced Analysis Part 3 – Meet the Coco aka AT-1 Bond – A European thing

Coco’s sizzle because they can essentially be converted at the company’s whim, leaving little control to the actual bond holder!

Bonds are debt instruments unlike Equity (stock ownership) in “MOST” cases that have a front row ownership to the company. Said another way, if something happens to the Company a Bond holder is in most cases the very first person to get paid. Bond holders loan the company money only to hopefully get paid interest on that money and eventually the return of that money in the future.

Convertible Bonds as they are most commonly known, give the bond holder the right to convert or exchange those bonds for another ownership strand of the company. Coco bonds are converted if the Banks hit certain levels, which are stress levels, unlike normal convertibles which are fun/happy levels.

When Coco bonds are converted, investors may actually be taking a step back in ownership (Debt to Equity) have no control in when this happens, and may have large losses immediately for doing so.

Coco bonds do pay more interest, but as some (European banks) are finding out recently, this is not near enough to cover the uncontrolled convert at a less than happy time in the investments life.

Chopped this down a bit, as it is a Monday and wanted to get the Break In to everyone… Just trying to explain, in a very small world, that events across the pond, weird as they may be, have ripple effect here in the USA!

Have a Great “Coco Bond Understanding” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.



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