DO NOT DOG ON BANKS
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
May 2023 Audio Video Review – Buffet/Munger Words of Wisdom, Debt Ceiling, – Financial Planning and Capital Market Review – By John Kvale CFA, CFP
Hello and Welcome to our May 2023 Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast audio format as well as Video!
We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets thoughts and current events!
Hope you enjoy!
May 2023 Video –
Financial Planning Tip(s)
Berkshire Hathaway – Buffett Munger Words to Live By
In this post Charlie Munger and Warren Buffet are discussed in great details… along with a secret to speeding the time to listen (1.75x speed)…..
Main thoughts to live by from Charlie and Warren:
Early on, write your desired obituary – and then behave accordingly.
irrational and get lousy results.
thing for a long time is a huge advantage.
Particularly added this as just last week, saw a review of the meeting that completely missed several of these points in my opinion.
Capital Market Comments –
Debt Ceiling Fizzle- All done until after next elections
With several comments from the field, we spoke multiple times, here and here about the Debt Ceiling, the history and the most likely outcome…
Much of our confidence on the matter comes from our contacts that we have developed over the years that try to give us a 100% straight scoop as much as possible…. They could always be wrong, but being numbers folks, we go with the odds…
They were right, once again!
Have a Great Day, Talk to You at the End of June !
John A. Kvale CFA, CFP
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Tagged Charlie Munger, Debt Ceiling, John Kvale, Monthly Review, Warren Buffet