I’m KooKoo For CoCo Bonds!

In the near term, much depends on the fate of Deutsche bank’s talks with the U.S. Justice Department over their $14 billion mortgage fine. Anything over $6.72 billion will cause real problems in regard to Deutsche’s ability to make coupon payments on the bank’s contingent convertible, or CoCo, bonds. But, even if the fine is watered down, the penalty will still increase Deutsche Bank’s need to tap investors for more cash.

CoCo bonds are hybrid instruments that convert to equity when a bank’s capital level falls below a certain threshold. By design, a missed CoCo coupon payment isn’t considered a default.

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