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CoCo Bond, Opportunity or Risk?

CoCo Bond, Opportunity or Risk?

The report examines the domestic and overseas issuance trends of CoCo bonds, and opposing views on the bond from an objective point of view. It also examines both the opportunity and risk factors.


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In order to preemptively cope with the request for capital expansion due to the recent Basel Ⅲ regulations, Korean banks are actively issuing CoCo bonds. ‘CoCo Bond (Contingent Convertible Bond)’ is a conditional capital bond. It is issued with certain conditions that allow for the investment principal to be converted into equity or refunded if a pre-specified trigger event occurs. It is in the form of relatively high interest rate debt, but is accepted as capital in terms of accounting, therefore becomes a means to expand capital for banks. However, the accumulated bad loans and negative interest rate policies have increased the deficits of European banks. In this situation, the sudden excessive price change of Deutsche Bank’s CoCo bonds came as a huge shock to the market in February 2016. Moreover, it left much implications on the potential risks of CoCo bonds, which
investors have underestimated.

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