The global issuance of contingent convertible securities (CoCos) is expected to grow in the second half of 2015 as banks look to bolster their capital in order to become compliant with the Basel III rules, according to a new report from New York City-based Moody’s Investors Service, Inc.
Banks have issued US$47.5 billion worth of CoCos so far this year, down from US$53 billion in the same period a year ago, the credit-rating agency reported on Tuesday.
However, CoCos issuance by Nordic, Canadian and Indian banks has surged this year, Moody’s notes. Chinese banks are the leaders in CoCo issuance in 2015, accounting for 28% of total face value.
Although issuance is down so far this year, Moody’s expects it to gain momentum in the second half.
“Although annualized the amount would total about US$127 billion for 2015, or well below US$175 billion in 2014,” says Barbara Havlicek, a Moody’s senior vice president, “we expect a pick-up in the second half as banks fulfill their regulatory capital requirements.
“We also expect that issuance will remain concentrated among the top 10 issuers, even though the issuance base is broadening,” she adds. “As the largest, globally active institutions, they have to meet significantly higher capital requirements and buffers under Basel III and national regulatory frameworks.”
In 2014, the top 10 bank issuers accounted for 25%-30% of total issuance of senior unsecured bank debt, but they issued almost 40% of CoCos.