A friend of mine testified in the US House of Representatives that CoCo (Contingent Convertible) bonds are the savior of the banking industry. Apparently he didn’t know about Deutsche Bank’s precarious position!
Additional Tier 1 contingent convertible bonds, CoCos, are among the riskiest debt because they can be wiped out to create capital for a bank in a financial crisis. While they are sold as perpetual bonds, they are typically callable after five years. Secondary market pricing of the debt is based on the expectation they will be redeemed at the first call date.
One CoCo bond stands out in the CoCo Loco-sphere: Duetsche Bank’s 6.25% bond. Which is signalling a potential wipe out.
This is not surprising given Deutsche’s performance since the global financial crisis when it peaked at $125 per share in May 2017 and is now trading at an abyssmal $8.31 per share.