July 28, 2011 / 10:56 AM / 7 years ago

C.Suisse sees robust CoCo market despite FSB snub

* C.Suisse expects more banks, regulators to use CoCos

* Fewer issuers means more interest for C.Suisse bonds

ZURICH, July 28 (Reuters) - Swiss bank Credit Suisse still sees a strong market developing for contingent convertible bonds (CoCos) after banking regulators ruled they don’t count towards the extra core capital big banks must carry.

“There will end up being a robust market,” Credit Suisse Chief Executive Brady Dougan told an analyst results presentation. “It is a good capital instrument for the industry, so I hope it has increased acceptability.”

The Financial Stability Board decided earlier this month that only top quality capital will be acceptable for a “surcharge” on the world’s top banks, dashing the hopes of lenders wanting to use lower-quality hybrid debt or CoCos.

However, Switzerland has drawn up its own, stricter capital rules and has kept CoCos as an option.

Dougan said while the FSB had backed away from CoCos, it had not ruled them out as a supplement and said he expected a number of banks and national regulators would decide to use the relatively untested instruments.

He noted that Credit Suisse’s CoCo issue earlier this year was 20 times oversubscribed and said the fewer issuers there were, the more interest there would be for the bonds.

The Swiss government wants to make UBS and Credit Suisse hold Tier 1 equity type capital of at least 10 percent, compared with 7 percent under new industry rules known as Basel III, plus a further 9 percent of other forms of capital, such as CoCo bonds, lifting the total capital ratio to a hefty 19 percent.

UBS said on Tuesday it was talking to regulators about issuing non-dilutive capital as an alternative to CoCos, given its scepticism about the instruments.

UBS Chief Executive Oswald Gruebel has said that CoCos, which are debt instruments that convert into equity if the bank’s capital falls to a set level, are dangerous as they could accelerate a sell-off in shares as the level is approached. (Reporting by Emma Thomasson; Editing by Will Waterman) ($1=.8050 Swiss Franc)

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