Santander's CoCo Bond Creates All Kinds of Trouble
The bank’s decision to ignore convention is bad for its own credibility, bad for bondholders and bad for the AT1 market. Was it really worth it?
This giant Spanish bank has just managed to infuriate many of its investors.
Photographer: Angel Navarrete/BloombergHow to lose friends and alienate investors. Spain’s biggest bank, Banco Santander SA, chose to wait until the last available moment to tell holders that it wasn’t going to redeem a particular 1.5 billion euro ($1.7 billion) bond after all.
The note in question was a so-called Additional Tier 1 (an AT1 or CoCo for short) and it’s accepted practice in the market to call these bonds on their redemption date. Santander’s decision may make sense for the lender from a purely economic perspective (it’s cheaper right now just to keep the AT1 running rather than issue a replacement), but it’s an incredibly cavalier way to treat investors. Even holders of Santander’s equity, who ostensibly stand to benefit from anything that saves money for the bank, took a dim view by pushing its share price down on Wednesday morning.