NORTH CAROLINA BANKING INSTITUTE Volume 22 | Issue 1 Article 21 3-1-2018 Investors' Trash, Taxpayers' Treasure: The aB nco Popular Wipeout and Contingent Convertible Bonds Joanne Wu Follow this and additional works at: http://scholarship.law.unc.edu/ncbi Part of the Banking and Finance Law Commons Recommended Citation Joanne Wu, Investors' Trash, Taxpayers' Treasure: The Banco Popular Wipeout and Contingent Convertible Bonds, 22 N.C. Banking Inst. 405 (2018). Available at: http://scholarship.law.unc.edu/ncbi/vol22/iss1/21 This Note is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Banking Institute by an authorized editor of Carolina Law Scholarship Repository. For more information, please contact
[email protected]. Investors’ Trash, Taxpayers’ Treasure: The Banco Popular Wipeout and Contingent Convertible Bonds I. INTRODUCTION One man’s trash is another man’s treasure. The old adage applies to the banking and finance industry and there is no better instrument to illustrate this adage than the volatile contingent convertible bond. Contingent convertible bonds (“CoCo bonds”) are hybrid debt instruments.1 Once the issuing bank’s capital ratios fall below a certain threshold or regulators determine it is appropriate, the bond is converted into stock for the bondholder or written down if the bank needs to raise its capital levels.2 These bonds have enticed investors due to their attractively high yields.3 However, recent events show that the yields may not be worth the risk to bondholders, but could be invaluable to taxpayers.4 CoCo bonds came about after the 2008 financial crisis and were designed as part of a global regulatory shift to prevent banks from needing taxpayer-funded bailouts.5 Both the Third Basel Accord (“Basel 1.