What Are Contingent Convertibles?
Contingent Convertibles (CoCos) are a unique financial instrument issued predominantly by European financial institutions to meet specific capital requirements under the Basel III regulatory framework. Unlike traditional convertible bonds, CoCos have specialized conversion triggers designed to help undercapitalized banks absorb losses without having to repay bonds or make interest payments. These debt securities can be converted into equity if certain conditions are met, such as a bank’s capital ratio falling below regulatory standards. Investors receive regular, fixed-interest payments during the life of the bond, providing both the benefits of traditional bonds and potential stock appreciation when the bond converts.
The origins of CoCos date back to the Basel III regulatory framework, which tightened capital requirements for banks by limiting the types and structures of available bank capital. European banks turned to CoCos as an alternative Tier 1 capital source, allowing them to absorb losses without having to issue common stock or retain earnings. The high-yielding nature of these bonds has made them increasingly popular in Europe and Asia among individual investors and private banks.
Contingent Convertibles (CoCos) vs Traditional Convertible Bonds:
Although CoCos share some similarities with traditional convertible bonds, they possess significant differences. Both debt securities have a strike price that determines when the bond converts to stock. However, CoCos contain specialized conversion triggers which can be based on specific bank capital conditions or regulatory requirements. Additionally, CoCos provide investors with regular interest payments while allowing banks to absorb losses more efficiently than traditional convertible bonds.
Banks’ Use of Contingent Convertibles:
Contingent convertibles serve a dual purpose for European banks. They offer an alternative Tier 1 capital source when the bank falls below regulatory capital requirements, helping the institution to meet these requirements while limiting capital distributions. In such cases, the CoCos can be converted into equity without requiring interest payments or repayments of the bond principal.
Benefits for Investors:
Investing in contingent convertibles presents an attractive opportunity with high yields compared to traditional bonds. These bonds offer investors a regular income stream through fixed-interest payments, as well as potential capital appreciation if and when the bond converts to stock. This unique combination of fixed income and potential equity gains has made CoCos appealing to individual investors in Europe and Asia and private banks.
Risks for Investors:
Despite their potential benefits, contingent convertibles also come with inherent risks. The conversion of a CoCo into equity can result in diluted earnings per share (EPS) for the investor due to the increased number of outstanding shares. Additionally, there is no guarantee that the CoCo will be converted or fully redeemed, meaning investors may hold these bonds for an extended period. Lastly, if the bank’s stock price declines significantly at the time of conversion, investors could potentially face significant losses on their investment.
Real-life Example: The Case of Credit Suisse and Contingent Convertible Bonds:
The impact of contingent convertibles on creditors was demonstrated during the takeover of Credit Suisse by UBS in March 2023. In this case, Swiss regulators allowed a write-down of contingent convertible bonds issued by Credit Suisse, causing significant losses for bondholders. The move highlighted the potential risks associated with these high-yielding securities and raised concerns regarding their future in the European financial landscape.
Understanding Contingent Convertibles: A High-Yield, Complex Financial Instrument
Contingent convertibles represent a unique financial instrument primarily used by European banks to meet specific capital requirements under the Basel III regulatory framework. By offering high yields and potential equity appreciation, these bonds have gained popularity among individual investors and private banks alike. However, their specialized nature and complex conversion triggers come with inherent risks that must be carefully considered.
Banks’ Use of Contingent Convertibles: Meeting Capital Requirements Efficiently
Contingent convertibles serve as an essential tool for European banks in meeting the Tier 1 capital requirements outlined by the Basel III regulatory framework. By absorbing losses through CoCos, undercapitalized banks can avoid having to issue common stock or retain earnings while still providing investors with a steady income stream through fixed-interest payments.
Benefits for Investors: High Yields and Potential Stock Appreciation
Contingent convertibles provide investors with an attractive combination of high yields, regular interest payments, and potential capital appreciation upon conversion to equity. However, these complex securities come with inherent risks, making it essential that investors thoroughly understand the unique nature of contingent convertibles before investing in them.
Risks for Investors: Diluted Earnings and Possible Losses
Although contingent convertibles offer potential benefits, they also carry significant risks. The conversion of a CoCo into equity can lead to diluted earnings per share (EPS), while the uncertain nature of these bonds’ conversion or redemption raises the possibility of investors holding them for extended periods with no guarantee of return on investment. Furthermore, if the underlying bank’s stock price declines at the time of conversion, investors could face substantial losses on their investments.
Understanding Contingent Convertibles: A Complex but Attractive Financial Instrument in the European Banking Landscape
Contingent convertibles represent a unique financial instrument that combines elements of bonds and equities, offering high yields and potential equity appreciation to investors. Their specialized nature, complex conversion triggers, and inherent risks make it crucial for investors to fully understand these instruments before investing. By providing undercapitalized banks with an efficient means of absorbing losses while maintaining a regular income stream, contingent convertibles have become an essential component in the European banking landscape.
Background and Basel III Capital Requirements
Contingent convertibles, also known as Additional Tier 1 (AT1) bonds or CoCo bonds, are a type of debt instrument specifically designed to help European banks meet the stringent capital requirements set forth in the Basel III regulatory framework. The primary goal was to prevent another financial crisis like the one experienced between 2007 and 2008 by ensuring that European banks maintain adequate levels of capital to absorb losses and support their underlying businesses.
In the context of banking regulation, Tier 1 capital is the highest-rated type of bank capital, which includes retained earnings and common stock shares. Banks issue shares to investors as a means to raise funds for their operations while offsetting bad debt losses. However, some banks may find themselves undercapitalized, making it challenging to meet the minimum Tier 1 capital requirements set by regulators. Contingent convertibles act as an additional form of Tier 1 capital for these institutions, offering both benefits and risks to European banks and investors alike.
Contingent convertibles can absorb financial losses through conversion to equity. Instead of being triggered solely by the appreciation of stock prices like traditional convertible bonds, these bonds may convert when specific regulatory or capital thresholds are met, allowing undercapitalized banks to maintain their financial stability while avoiding potential insolvency.
In exchange for this added layer of protection and flexibility, investors receive high yields on their contingent convertible investments. This has led to their popularity among individual European investors and private banking clients in Europe and Asia, as well as institutional investors seeking high returns in an environment where traditional bonds offer low yields.
The Basel III regulatory accord introduced a set of minimum standards for the banking industry, with a focus on improving supervision, risk management, and regulatory frameworks. The Tier 1 capital requirements under this agreement tightened, limiting the types of capital that banks could use to meet these new rules. As part of these changes, contingent convertibles have become increasingly popular among European financial institutions as a means to satisfy regulatory demands while offering investors high yields.
In summary, the creation and adoption of contingent convertibles (CoCos) can be traced back to the Basel III framework, which aims to improve the capital position of European banks, ensuring they can withstand potential losses in times of financial stress and uncertainty.
Structure of Contingent Convertibles (CoCos)
Contingent convertible bonds (CoCos), also known as contingent capital notes or coco bonds, represent a unique class of debt securities that offer both the features of traditional debt and equity instruments. Issued primarily by European banks, CoCos provide additional regulatory capital to help meet Basel III requirements. Unlike traditional convertible bonds, these instruments possess specific conversion triggers that allow them to transform into equity when particular conditions are met.
CoCos share some similarities with plain vanilla convertible bonds, as both securities pay a fixed interest rate and offer the potential for capital appreciation through stock price appreciation upon conversion. However, key differences lie in their conversion mechanisms and regulatory context.
In traditional convertible bonds, conversion occurs when the bond’s underlying stock reaches a specified strike price. The investor can choose to convert the bond to stock at that point, enjoying both the interest income and capital gains potential. With CoCos, however, conversion is triggered by bank-specific conditions instead of a predetermined stock price.
The most common conversion triggers include:
1. A decline in a bank’s Tier 1 regulatory capital ratio to a predefined threshold
2. The bank’s discretion to convert the bonds when necessary to meet solvency requirements
3. Market events, such as an increase in interest rates or a significant drop in stock prices
Banks can tailor the conversion features of CoCos to their specific needs and circumstances. For instance, they may set multiple triggers for a single bond, allowing for flexibility in capital management strategies.
This structure enables banks to benefit from CoCos as an alternative form of Tier 1 regulatory capital. In times of financial stress or uncertainty, these instruments can help absorb losses by converting into equity when required, thus maintaining the bank’s overall solvency and stability.
The conversion feature can also be advantageous for investors. When the bond is converted to stock, they receive shares in the issuing bank at a discounted price due to the predetermined trigger. This presents an opportunity for potential capital gains if the share price rises after conversion. Additionally, investors receive interest income until the CoCo is triggered and converted.
Despite their appeal, CoCos are considered high-risk securities. The risk lies primarily in the uncertainty of when the conversion trigger will be activated and the potential impact on stock prices during the conversion process. Investors should carefully consider their tolerance for risk before investing in these instruments.
In summary, contingent convertible bonds (CoCos) provide European banks with a unique tool to meet regulatory capital requirements while offering investors an opportunity for high-yield returns and potential capital appreciation through the conversion into equity when specific triggers are met. Understanding their unique features and risks is crucial for both issuers and investors in this evolving market.
Banks’ Use of Contingent Convertibles
Contingent convertible bonds (CoCos) have gained popularity among European financial institutions due to their unique features and benefits in meeting regulatory capital requirements under the Basel III framework. A CoCo is a bond with an embedded conversion option that allows a bank, when triggered by certain conditions, to exchange it for equity instead of making interest payments or repaying the principal amount. This hybrid debt instrument not only provides banks with the advantage of maintaining their Tier 1 capital levels but also offers investors high yields and the potential for stock appreciation.
Under the Basel III framework, a bank must maintain sufficient Tier 1 capital to absorb losses on its balance sheet. CoCos serve as an ideal solution by acting as additional Tier 1 capital. These instruments offer banks the flexibility of converting their debt into equity when required while avoiding immediate repayment or interest payments. For instance, if a bank falls below the regulatory minimum capital requirements, it can convert CoCos to equity instead of distributing dividends or making other capital distributions, thereby maintaining its Tier 1 capital ratio.
The potential triggering conditions for contingent convertibles vary depending on the specific agreement between the issuing bank and the investors. Commonly, triggers include a decrease in regulatory capital ratios, a fall below a predefined stock price level or threshold, or the approval of regulatory authorities. As a result, CoCos protect banks from having to make interest payments or repay principal when they are most vulnerable and under financial stress.
The issuance of contingent convertibles has proven advantageous for both European banks and investors. For banks, these bonds help them maintain their capital levels while providing a cost-effective method for absorbing potential losses. CoCos also serve as a means of raising new capital to meet regulatory requirements or fund business operations.
On the other hand, investors benefit from the high yields that contingent convertibles offer. In exchange for the added risk associated with these bonds, they receive interest payments at significantly higher rates compared to traditional bonds. Additionally, if the bank’s stock price rises above a predefined threshold or regulatory approval is granted for conversion, investors may receive equity in lieu of the remaining bond balance. This potential upside can lead to substantial capital gains if the underlying bank recovers and its stock price appreciates.
The use of contingent convertibles has become increasingly popular among European banks due to their ability to provide additional Tier 1 capital, minimize interest payments during periods of stress, and offer an attractive alternative for investors seeking high yields. However, it is essential for both banks and investors to thoroughly understand the risks involved with these complex financial instruments before investing or issuing them.
In conclusion, contingent convertibles have become a vital tool for European banks in meeting capital requirements under the Basel III framework while offering attractive yields for investors. By converting debt into equity when triggered by specific conditions, CoCos enable banks to maintain their Tier 1 capital levels and absorb losses more effectively. Understanding the unique features and benefits of contingent convertibles is crucial for both potential issuers and investors as they navigate this evolving financial landscape.
Benefits for Investors
Contingent Convertible Securities (CoCos) are a popular investment option among income seekers due to their high yields and potential stock appreciation when the bond converts. European investors have shown particular interest in CoCos since they offer several advantages that make them unique compared to traditional bonds or equities. In this section, we will delve deeper into understanding how these securities benefit investors.
High Yields: A primary allure of CoCos is their high yields. The bonds typically yield significantly more than traditional bonds due to the associated risks. As a result, they appeal to investors seeking higher returns in a low-interest environment.
Potential Stock Appreciation: When the conversion trigger is activated, CoCo bonds convert into the issuer’s shares, granting investors potential stock appreciation. This feature makes CoCos an attractive option for those looking to profit from a rise in the underlying stock price.
Regulatory Arbitrage: European banks can issue CoCos to meet regulatory requirements and improve their capital ratios. In doing so, they can absorb losses while providing investors with interest payments until the conversion trigger is met. This situation benefits investors by offering them a stake in the issuing bank and potential upside through equity ownership.
Diversification: Investing in CoCos provides an excellent opportunity for diversification within a portfolio. With their unique structure, these securities can help mitigate risks associated with traditional bonds and equities.
Investor Protection: European regulators have implemented various safeguards to protect investors from excessive losses when CoCos convert to stock. For instance, the regulatory framework dictates that banks must maintain a minimum level of Tier 1 capital and provide several conversion triggers. These requirements help ensure that CoCo issuers are financially sound before converting the debt into equity.
Risk-Reward Balance: The high yields associated with CoCos come with an increased risk profile compared to traditional bonds or equities. However, this risk is balanced by potential stock appreciation upon conversion and regulatory arbitrage benefits. A well-structured CoCo investment can offer investors an attractive risk-reward proposition.
Despite the numerous advantages of CoCos for investors, it’s crucial to be aware of their risks, which include diluted earnings per share, difficulty selling positions, and potential losses if bonds are converted during unfavorable market conditions. In our next section, we will further discuss these risks in detail.
In conclusion, contingent convertible securities (CoCos) offer a compelling investment opportunity for income seekers and those looking to profit from potential stock appreciation when the bond converts. With their high yields and unique structure, CoCos provide several benefits that make them an attractive alternative to traditional bonds or equities while offering investors the chance to diversify their portfolios and participate in the financial success of European banks.
Risks for Investors
One significant downside to investing in contingent convertibles (CoCos) is that investors face various risks, including diluted earnings per share, difficulty selling positions, and potential losses if bonds are converted to stock during unfavorable market conditions.
Let’s delve deeper into these risks and explore their implications for investors:
1. Diluted Earnings Per Share (EPS)
Investors in CoCos may face the risk of diluted EPS when a bank converts its debt to equity, as new shares are issued, reducing the value of each existing share. This can lead to decreased profitability and lower potential returns for investors. For example, if an investor holds 1,000 shares of a company with an EPS of $1 per share, and the bank converts its CoCo bonds into equity, issuing 1,000 new shares at a price of $50 each, the investor’s EPS will drop from $1 to approximately $0.67 ($1/1,010), assuming there are no other changes in the company’s financial situation.
2. Difficulty Selling Positions
CoCos may be challenging for investors to sell if regulators restrict their sale or trading, as they act as Tier 1 capital for banks. Banks may prefer holding their CoCo bonds rather than redeeming them, which could limit liquidity in the market and make it difficult for investors to exit their positions. Additionally, given their complexity, contingent convertibles can be less attractive to other potential buyers, further reducing their marketability.
3. Potential Losses from Conversion During Unfavorable Market Conditions
Another risk for investors is that bonds may be converted to stock at an unfavorable time, such as when the underlying bank’s stock price is declining. In this scenario, investors could realize significant losses if they are forced to accept shares with little or no value instead of their original investment in the bond. The potential loss would depend on the conversion price and the current market conditions when the conversion occurs.
These risks should be carefully considered before investing in contingent convertibles. By understanding the implications, investors can make informed decisions and manage their risk exposure effectively.
Case Study: Credit Suisse and the Wipeout of CoCo Bonds
The impact on creditors when Swiss regulators allowed a write-down of contingent convertible bonds following Credit Suisse’s takeover by UBS
When banking giant UBS agreed to acquire Credit Suisse in March 2023, the $17 billion deal marked a significant turning point for European banks’ use of contingent convertibles (CoCos). The Swiss government-brokered agreement aimed to contain a crisis of confidence that had started to spread across global financial markets. However, this event raised concerns among investors holding CoCos issued by Credit Suisse and other European lenders.
Background on Contingent Convertibles at Credit Suisse
Contingent convertibles (CoCos) were introduced in Europe as a way for banks to raise capital while providing additional loss-absorbing capacity during times of stress. These bonds have unique features that allow the conversion of debt into equity when certain predefined conditions, known as triggers, are met. In the case of Credit Suisse, the bank had issued 13 CoCo issues worth a combined CHF 6 billion ($7.2 billion).
Credit Suisse’s Wipeout: A Historic Loss for Contingent Convertible Bondholders
When UBS took over Credit Suisse, Swiss regulators decided to write down the riskiest CoCo bonds rather than use equity shareholders to absorb losses. This decision came as a shock to some bondholders, who had expected to receive equity shares upon conversion. Instead, they faced significant losses. The event raised questions about the future of the CoCo market and its impact on other European banks.
Impact on Credit Suisse’s Creditors
The write-down of Credit Suisse’s contingent convertible bonds led to massive losses for bondholders. While most other European banks have protections in their deal terms, Credit Suisse and UBS had language that allowed for a permanent write-down. The implications were far-reaching: the wipeout of these CoCo bonds resulted in substantial losses for investors holding positions in various European banks.
The Debate on Regulations and the Future of Contingent Convertibles
European regulators reiterated their stance that equities should absorb losses before bondholders. However, some creditors argued that this decision could discourage banks from issuing new CoCos due to the perceived risk. The controversy surrounding Credit Suisse’s wipeout has led many investors and industry experts to question the future of contingent convertibles in Europe.
Comparing Contingent Convertibles with Traditional Convertible Bonds
Although both contingent convertibles (CoCos) and traditional convertible bonds involve conversion from debt to equity, they possess notable differences. CoCos have multiple triggers that can lead to their conversion, while traditional convertible bonds have a single, predefined trigger. Additionally, CoCos pay higher interest rates but provide banks with options to absorb capital losses. In contrast, traditional convertible bonds offer regular interest payments and are used by corporations to raise capital.
In conclusion, the Credit Suisse wipeout of contingent convertible bonds marks a turning point for these high-risk instruments in Europe. As regulators continue to grapple with their role in absorbing losses during financial crises, investors will closely monitor the implications for European banks and their CoCo holdings.
Key Takeaways:
1. Contingent convertible bonds (CoCos) were introduced to help European banks meet Basel III capital requirements.
2. These high-risk, high-yield instruments can absorb losses through conversion into equity when specific conditions are met.
3. When Swiss regulators allowed a write-down of Credit Suisse’s CoCos following the bank’s takeover by UBS, bondholders faced significant losses.
4. The controversy surrounding this event has raised questions about the future of contingent convertibles and their role in European banking.
5. Contingent convertibles differ from traditional convertible bonds in terms of conversion triggers, interest rates, and issuance purposes.
Regulation of Contingent Convertibles
Contingent convertible bonds (CoCos) are subject to various regulatory frameworks due to their unique features and role in the banking system. European regulators have been closely monitoring these securities since they were introduced to help banks meet capital requirements under the Basel III regulations.
One of the primary regulatory bodies overseeing CoCos is the European Banking Authority (EBA). The EBA has issued several guidelines and recommendations for banks issuing and holding these instruments, focusing on transparency, disclosure, risk management, and investor protection.
The European Securities and Markets Authority (ESMA) is another crucial regulatory body that plays a significant role in regulating contingent convertibles. ESMA focuses on ensuring investor protection, market transparency, and orderly trading of CoCos. ESMA collaborates with national competent authorities to create consistent regulatory frameworks for the issuance, trading, and disclosure of these securities across European markets.
The European Central Bank (ECB) also plays a crucial role in regulating contingent convertibles as part of its monetary policy objectives. The ECB has established certain criteria that banks must meet to access its refinancing operations, ensuring that their CoCos align with the bank’s stability and solvency requirements.
The International Organization of Securities Commissions (IOSCO) also keeps a close watch on CoCos in various global markets, including those outside Europe. IOSCO aims to maintain investor protection, market integrity, and market efficiency by ensuring that regulatory frameworks governing CoCos are robust and consistent across jurisdictions.
Banks issuing contingent convertibles must adhere to strict eligibility criteria set by these regulatory bodies to ensure their financial stability and solvency. Compliance with these regulations is essential for banks to maintain investor confidence, access capital markets, and mitigate potential risks associated with holding CoCos.
Regulatory oversight extends beyond just the issuance of CoCos. The market pricing and trading of contingent convertible securities are also subject to scrutiny from various regulatory bodies to ensure a fair and orderly trading environment for investors.
The European banking sector has embraced contingent convertibles as an essential tool for improving their balance sheets and meeting capital requirements under the Basel III framework. However, regulators continue to monitor these securities closely to mitigate risks, protect investor interests, and ensure their consistent implementation across jurisdictions.
Regulations surrounding CoCos have evolved significantly since their introduction, with various regulatory bodies continuously refining their guidelines to address emerging risks and market developments. Regulatory collaboration and coordination between national authorities and international organizations, such as the EBA, ESMA, and IOSCO, are critical for maintaining a stable and well-regulated CoCos market in Europe and beyond.
Comparison with Convertible Bonds and Other Financial Instruments
When it comes to understanding contingent convertibles (CoCos), it’s essential to recognize their differences from other financial instruments such as traditional convertible bonds and stocks. Though the term “contingent” might lead one to believe that CoCos are a specific type of convertible bond, they differ significantly in structure and purpose.
First, it’s crucial to outline the basics of convertible bonds. Like contingent convertibles, these bonds allow the holder to exchange their debt for equity at a predetermined conversion price (strike price). The main advantage of traditional convertible bonds is that they provide a fixed income component and capital appreciation potential through stock conversion when the issuing company’s stock price rises.
However, contingent convertibles have unique features and are primarily used by European financial institutions to meet regulatory requirements under the Basel III framework. The primary difference lies in the conversion triggers that can initiate the conversion from debt to equity. These triggers can include specific capital levels or the demand of regulatory authorities.
In contrast, traditional convertible bonds do not have such contingencies and typically offer a fixed maturity date, interest payments, and a single conversion price. Investors in these bonds benefit from the potential for capital appreciation when the underlying stock price rises, while also receiving periodic income through coupon payments.
The introduction of CoCos was driven by European banks’ need to meet Tier 1 regulatory capital requirements, which include retained earnings and common equity shares. By issuing CoCos, undercapitalized banks can absorb potential losses while raising capital and avoiding immediate repayment obligations. This allows them to maintain their balance sheets, ultimately making the financial sector more stable in times of economic stress.
As we continue to delve into the world of contingent convertibles, it’s essential to understand how they differ from stocks. Unlike stocks, which represent an ownership stake in a corporation, CoCos act as debt instruments that can be converted into equity under specific conditions. In terms of risk and reward, stocks offer potential capital gains or losses, depending on the performance of the underlying company. On the other hand, CoCos provide investors with a steady income stream through fixed interest payments, while offering the potential for capital appreciation if the bank’s Tier 1 capital requirements are met.
In summary, it is essential to comprehend the differences between contingent convertibles, traditional convertible bonds, and stocks. The unique characteristics of CoCos make them an attractive investment option for those willing to take on higher risk for potentially greater rewards and contribute to maintaining financial stability in the European banking sector.
FAQs: Frequently Asked Questions
Question 1: What makes contingent convertibles (CoCos) different from traditional convertible bonds?
Answer: Contingent convertibles and traditional convertible bonds both allow the bond to be converted into equity or stock once a specific trigger is met. However, CoCos have additional triggers that may cause the conversion beyond just reaching a stock price level. Additionally, interest rates for CoCos are typically higher than those of traditional convertible bonds due to their added risk.
Question 2: Why are contingent convertibles popular among European banks?
Answer: Contingent convertibles became popular in Europe because they help banks meet Basel III capital requirements by acting as Tier 1 capital and allowing the bank to absorb losses through debt conversions rather than issuing more shares. This also keeps capital distributions limited for banks facing financial hardship.
Question 3: Who invests in contingent convertibles?
Answer: Contingent convertibles are primarily targeted towards individual investors in Europe and Asia, as well as private banks, due to their high yields and potential capital appreciation when the bond converts to stock.
Question 4: What happens if a bank’s stock price declines when a CoCo is converted?
Answer: Investors may experience losses since the conversion of the bond to equity occurs when the bank’s stock price is falling, potentially leading to diluted earnings per share and further decreased stock value. This risk makes contingent convertibles high-risk investments for potential investors.
Question 5: What role do regulators play in CoCo issuance?
Answer: Regulators play a significant role in allowing or disallowing the sale of contingent convertible bonds to investors, as they want to ensure banks remain well-capitalized and are able to absorb losses before bondholders. This can make it difficult for investors to sell their positions if the regulator does not allow it.
Question 6: What happened to Credit Suisse’s contingent convertible bonds during its acquisition by UBS?
Answer: During the acquisition of Credit Suisse by UBS, CoCo bondholders experienced significant losses as the bonds were converted to equity when the bank’s stock price was low. This event highlighted the risks associated with investing in contingent convertibles and raised concerns about their future role in European banking.