A CoCo Bond That Wants to Save the World
BBVA labelled its new AT1 as a green investment. But can you really use a bond as capital and a green-financing tool at the same time?
Is tackling this kind of thing the job of a CoCo bond?
Photographer: Qilai Shen/BloombergSpanish lender Banco Bilbao Vizcaya Argentaria SA is claiming a milestone in the global fight against climate change. It has just become the first lender to sell the riskiest type of bank debt while putting a fashionable environmental label on it. Sadly, as is often the case in finance, this innovation may do more harm than good.
BBVA sold a 1 billion-euro ($1.1 billion) additional tier-1 perpetual note on Tuesday, and designated it as a green bond. AT1s — otherwise known as contingent convertible bonds, or CoCos — are popular because they pay more interest than other debt, in exchange for investors being at the front of the queue to bear losses if the bank fails. In this case the coupon was 6%.