Barclays becomes the latest bank to get on the CoCo bond bandwagon

Hayley Kirton
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Barclays has become the latest bank to jump into the CoCo market (Source: Getty)

Barclays has today become the latest lender to launch a CoCo bond.

The transaction for the bonds, which will be denominated in US dollars, has not been priced yet and is expected to launch in the near future, depending on market conditions.

Contingent Convertible capital notes – or CoCos for short – are a type of bond which can be easily converted into shares, should financial institutions run into trouble and need to raise equity quickly.

CoCos behave as typical bonds, provided the lender's capital remains healthy. If the capital buffer drops below what is determined necessary by regulation, which is seven per cent in the UK, the bonds are transferred to shares, which limits the likelihood of the lender having to be rescued by the taxpayer.

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Although the market risked all but drying up at the start of the year, summer has been busier for CoCos. Earlier this month, RBS sold $2.65bn (£2bn) worth of CoCo bonds to help bolster its capital reserves, while Standard Chartered also made an issue of its own.

Barclays reported its half-year results towards the end of last month, revealing pre-tax profits had fallen 21 per cent to £2.1bn, although most of the bad news was contained to the bank's so-called non-core business.

At the time of the results, group chief executive James 'Jes' Staley repeated his pledge to ditch the bank's non-core units as soon as possible.

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Shares in Barclays closed up 1.4 per cent at 162.23p. However, the banking behemoth's share price is down roughly a third compared with where it stood at the same time last year.

Barclays Barclays | mobile image

Although the bank performed relatively well in recent stress testing by the European Banking Authority, the testing did show Barclays' capital would be eroded to a mere 7.3 per cent in the event of a sharp downturn.