CoCos ride wave of liquidity

Welcome to the first edition of Bank & Insurance Hybrid Capital, a new publication dedicated to the asset class that we are delighted to be bringing you in association with our partners at Crédit Agricole CIB.

Our inaugural issue comes out as the post-crisis regulatory framework is becoming sufficiently detailed to allow a host of financial institutions to seriously consider capital instruments. At the same time, investors’ concerns and restrictions regarding buying the innovative structures that are being developed appear to be falling away.

Taken together, these developments have seen a surge in demand for a growing volume of issuance in late 2013 and the first weeks of 2014, culminating in a record $24.5bn order book for a $1.75bn AT1 transaction for Crédit Agricole in January.

Since then, UBS has shown the euro route to be open and, as our first issue was going to press, BBVA followed this up with a Eu1.5bn AT1, its choice of currency showing the development of the investor base since the Spanish bank pioneered the new instrument in US dollars in April 2013.

Nordic banks have meanwhile demonstrated their standing among investors by setting progressively tighter post-crisis record levels in the Tier 2 market. Once regulatory questions are answered it can be only a matter of time before the AT1 market welcomes some of the credits that have fared best through the crisis.

Insurance companies can watch the pace of change in the bank sector from a somewhat relaxed position. Wise from previous crises and with Solvency II having evolved since before the onset of the latest financial crisis, Europe’s insurers have long been adapting their business models and optimising capital structures.

The finalisation of their framework’s detail is nevertheless expected to be the catalyst for new hybrid activity from the sector and we hear from representatives of leading players in a roundtable.

It’s early days, but just over a month into the new year the asset class looks like the one to watch in 2014 and we look forward to accompanying you through the year.

Enjoy the ride!

Neil Day, Managing Editor