the unstoppable desire of man to create, on this occasion, complex financial instruments, is home to some extent the current crisis. To keep stumbling over the same stone, the market has recently delivered a new form of equity for banks to improve their ratios and raise funds. These are called CoCos, how nice to call the "contingent convertible ."
The CoCos are essentially debt, but, like the "Gremlins" became much worse when they are wet, CoCos become the capital to certain contingencies, especially if the numbers of solvency of the issuer falls below a certain level.
In Spain, the figure has not come as such but a kind of parental adaptation is all the rage with the capital requirements of the Bank of Spain: mandatorily convertible obligations, a kind of the English CoCos whose establishment has been forced, as so often, the Santander . Booty bank, moved to its sales force to place their customers 7,000 million mandatorily convertible bonds in 2007 for the purpose of addressing the huge capital needs that generated the flood of purchases was facing outside. The key is that mandatory convertible bonds are securities pay interest while they are bonds that come a moment ... oh, surprise ... they become actions in certain conditions ... with all that that entails .
The fact is that competitors Santander ridiculed the instrument at the time but now almost all have chosen the same path as BBVA, Popular, Sabadell Bankinter has launched a fever of mandatory convertible bonds into shares, each with its peculiarities and several wrongs. For banks, the CoCos fear they are ... because account as principal and can overcome the bar of 8% set by the Bank of Spain to the financial institutions listed. Given the scatter of this type of security, law recapitalization of the financial sector means that those already reported simply that the terms of engagement have been made to convert into ordinary shares before December 31, 2014 but for the new issue conditions are much more stringent and must be converted into shares on or before December 31, 2014 or "before that date in case of reorganization or restructuring of the entity or group. " That is the co ntingencia which co CoCos nvertibles to early English and can assume that, ultimately derived from its coupon bond condition is replaced by a dividend to be charged you know if as and when ... Therefore, the possibility of runs to be part of the shareholders of a bank inadvertently or because they give the contingency provided or because they reach the time limit laid down, investors should be aware that what they are buying are more bonds and shares rather than risk assessment based on this .
is not afraid to risk, but to recognize, assess and be able to sleep with him soundly.
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