Contagion: Chain Reactions and the CoCo Powder Keg
Many Happy Returns
Credit Suisse's Contingency Convertible Bond
Credit Swiss's capital structure included $17 billion worth of these cocoa bonds. Usually you would expect when the banks getting into trouble that these cocos are treated like equity or a little bit better than equity, right? But that's not what happened here, is it? What you'd expect to happen is the tier one capital ratio falls below a critical level. The cocos convert to equity, not great for the cocoa holders,. Suddenly you get the shares of a company, which is just going down the pan.
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