BARCLAYS is experimenting with a new contingent convertible (CoCo) in a bid to prepare itself for new European capital rules.
It has devised a new CoCo that would not only convert to equity if the bank’s capital ratio declined, but convert back again if things improved again.
The debt instruments will count towards capital buffers required of global systemically important financial institutions (GSifis).
High-yielding CoCos are riskier than bonds but are in great demand as the chance of banks’ capital ratios declining to levels that would trigger the equity switch decline.
Barclays finance director Chris Lucas is believed to be interested in blazing the trail, which could make it the industry leader in the financial instrument.
A Barclays spokesman declined to comment. However, a source close to Barclays told City A.M.: “We believe we have enough extra capital to meet the new rules. However, given the changes coming up with Basel we are looking at a range of possible routes we can follow to shore up our position. It would be a surprise to shareholders if we weren’t doing this.”