As autumn arrived in Europe this year, the leaves also seemed to be turning brown in the once verdant market for contingent convertibles (CoCos). Something special was needed to reinvigorate it, and that something duly arrived – HSBC’s $5.7bn inaugural additional Tier 1 (AT1) issue, the largest of its kind so far.
The EU version of Basel III’s rules on capital adequacy came into force at the start of 2014. Since they prescribe minimum levels of loss-absorbing capital, this has been the year of the CoCo. Financial institution group (FIG) hybrid issuance in Europe, the Middle East and Africa (EMEA) during the first half of the year was brisk, with AT1 issues from banks including Crédit Agricole, BBVA, Santander, Société Générale and, once Germany had belatedly clarified the tax position, Deutsche Bank. Most were in considerable size and all were mobbed by yield-hungry investors.
