When European regulators created a new type of bank debt, the idea was to transfer risk from taxpayers to investors. Now bondholders are learning what that really means.
Yield-starved investors bought $102 billion of the contingent convertible bonds, securities created to help troubled banks hang onto cash in times of stress by skipping coupon payments without defaulting and converting the debt to equity or writing it down. Even though neither of those has yet happened, investors are already feeling the pain, as yields on Deutsche Bank AG’s 4.6 billion euros ($5.2 billion) of CoCos have soared and its shares have plummeted.
