[대한경제=이종무 기자] Credit Suisse (CS), a global investment bank (IB) in Switzerland, was acquired by UBS, but financial instability in Europe continues. This is when the Swiss authorities decided to fully write off the contingent capital securities (AT1) issued by CS to resolve the crisis, the so-called ‘Coco bond’. In the midst of this, it is analyzed that the impact of CoCo bond issuance in the Korean banking sector will be limited as it accounts for a small portion of the total bank capital.
| Photo: Courtesy of Credit Suisse (CS) |
△ European investors continue to worry
According to the financial sector on the 26th, on the 24th (local time) in Europe, banking stocks fell all at once, and investor sentiment remains uneasy. The Euro Stoxx 600 banking sector index, which tracks 42 large banks in the European Union (EU) and the UK, evaporated regarding 5% during the session.
This is because the Swiss authorities’ AT1 write-off action has caused concern in the bond market. The scale of AT1 issuance by European banks, which the Swiss authorities decided to write off, was 19.6 billion euros as of last year, and regarding 27 trillion won worth of bonds became a piece of toilet paper overnight.
In fact, AT1 was introduced as a device for banks to recapitalize following the 2008 financial crisis. Although it has a relatively higher yield than general bonds, instead, when a crisis situation occurs, such as when the bank’s capital ratio falls below a pre-set level, the principal is written off or converted into common stock to increase bank capital. Although there is a possibility of losing the principal, it was considered a safer investment than stocks by investors.
However, this trust was completely broken by the CS crisis. Along with dissatisfaction, more investors questioned the bank’s funding method, and anxiety that new vulnerabilities might be exposed in the future in the event of an emergency grew.
△ Domestic banknotes are also 31.5 trillion.
It is known that more than 30 trillion won of Coco bonds have been issued in Korean banks. According to the financial authorities, as of the 20th, the balance of Coco bonds issued by domestic banks is 31.5 trillion won. 19.5 trillion won for financial holding companies and 12 trillion won for banks.
However, the financial authorities judge that it is difficult for something like CS to happen in Korea. This is because Coco bonds account for a small proportion of the total capital of banks. Of the total capital of domestic banks of 250 trillion won, the proportion of Coco bonds is regarding 5%.
In addition, domestic banks are also structured to write off the entire amount of Coco bonds, but the reason for write-off is when the financial authorities designate them as insolvent financial institutions (total capital ratio less than 4%, common stock capital ratio less than 2.3%) or when the common stock capital ratio is less than 5.125%. in case it falls The capital adequacy ratio of domestic banks is 15-16%, well above the 8% recommended by the Bank for International Settlements (BIS).
Financial authorities evaluate that there is little possibility of a large-scale write-off like CS, even under domestic legislation. Controversy has been raised that CS has borne losses on bond holders first rather than stock holders, but it is said that there is no condition in the domestic bank’s Coco bond special contract to write off before common stock.
Reporter Lee Jong-moo jmlee@
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