With the aim of rekindling risky bank debt’s market, quantitative easing in Europe has been made with two European lenders – UniCredit and Santander – trying to test the waters on contingent capital or what is commonly known as the CoCo bonds after the drought that lasted for a month.
CoCo bonds are convertible to equity or can be wiped out if ever the capital levels of the issuer fall below a threshold. CoCos had a good start to the year. It is because there are many banks that took advantage of record low rates for the purpose of being ahead of the bank-system health check this forthcoming fall by strengthening their balance sheets.
According to the analysts, the two European lenders will be helped with the assumptions that the European Central Bank will soon be taking aggressive measures in order to jump-start the flagging economy of the region to prompt on the most type of debts’ yields to fall. According to Roger Francis, who is Mizuho International PLC’s credit strategist, it only makes sense for the two European lenders to move fast simply because the current yields are very low. He also noted that other European Banks can follow the steps of these two banks that are currently testing the waters.