How could it be in the interest of any bank regulators to have CoCos with unclear and haphazard conversion terms?

Sir, I refer to Thomas Hale’s, Martin Arnold’s and Laura Noonan’s discussion on the regulatory uncertainty that exists, “Coco trade seeks to emerge from dark period” February 24.

I am amazed. If I was a bank regulator and I had signaled that one way for banks to cover for the capital regulators required were the CoCo’s, I would want these to be as clear and transparent as possible. That not only to make sure banks could raise these funds in the most competitive terms, but also to be sure I covered my own share of responsibility in the disclosure process.

Something must have gone seriously wrong if there is still such huge regulatory uncertainty. I mean I could not for a second believe that any regulator would want to withhold such information on purpose.

In April 2014 I sent you a letter that asked “Can bank regulators keep silence on the conversion to equity probabilities of cocos?" 

In it I wrote: “Do regulators have any moral or formal duty to reveal to any interested buyers of cocos if they suspect the possibilities of these having to be converted into bank equity being very high? I say this because if so, and if they keep silent on it, that would make them sort of accomplices of bankers. Would it not?... Of course banks need capital, lots of it, but tricking investors into it, does not seem like the right way for getting it.”

In May 2014 I wrote you a letter asking “Is it ok for a regulator, like EBA, to withhold information from 'experienced investors'?"

In it I asked “What would be the legal responsibility of bank regulators, towards any coco-bond investors, if they withheld important information with respect to the possibilities of those bonds being converted into bank equity?”... and also:“Britain´s regulator, the Financial Conduct Authority, has said it plans to consult on new rules to ensure cocos are only marketed to experienced investors…Would that imply that a regulator can withhold important information from “experienced investors”? If so, just in case, for the record, I have no knowledge about investments whatsoever.

And then in August 2014 I wrote you a letter that alerted: “The investors had priced market risks of CoCos, not the risks of bankers´ or regulators´ whims.”

But then again regulators might also have decided it was better to go and fly a kite J

@PerKurowski ©

Is it ok for a regulator, like EBA, to withhold information from “experienced investors”?

Sir, in previous letters to you, here and here I have expressed concern about what would be the legal responsibility of bank regulators, towards any coco-bond investors, if they withheld important information with respect to the possibilities of those bonds being converted into bank equity.

And now Sam Fleming and Martin Arnold report that the European Banking Authority, EBA, is also expressing some concerns on this issue, “European regulators seek to limit retail sales of bank credit”, May 20 (though not in the US FT issue).

But something is not clear… after the article refers to several reservations about these cocos being sold to retail clients, it informs that “Britain´s regulator, the Financial Conduct authority, has said it plans to consult on new rules to ensure cocos are only marketed to experienced investors”

Would that imply that a regulator can withhold important information from “experienced investors”? If so, just in case, for the record, I have no knowledge about investments whatsoever.

Can bank regulators keep silence on the conversion to equity probabilities of cocos?

Sir, I have one question in reference to Alice Ross’ and Christopher Thompson’s “German banks line up to join coco party”, April 24.

Do regulators have any moral or formal duty to reveal to any interested buyers of cocos if they suspect the possibilities of these having to be converted into bank equity being very high? I say this because if so, and if they keep silent on it, that would make them sort of accomplices of bankers. Would it not?

Of course banks need capital, lots of it, but tricking investors into it, does not seem like the right way for getting it.