Realistbear Report post Posted January 12, 2011 http://uk.finance.yahoo.com/news/Cocos-destabilise-recovery-tele-1843257214.html?x=0 Philip Aldrick, 17:37, Wednesday 12 January 2011 New debt instruments designed to shore up the banking system could destabilise insurers and pension funds and restrict the supply of credit to the economy, the Association of British Insurers (ABI) has warned. Insurers have "limited appetite" for contingent capital (cocos) or bail-in bonds, both of which are securities that convert to equity when a bank is in distress, the ABI wrote to the European Union financial services chief Michel Barnier. "There is a risk these measures will restrict banks' access to finance, with consequential reductions in banks' capacity to finance the recovery." Regulators see the new instruments as central to a reorganisation of banking by allowing lenders to recapitalise in a crisis without tapping the taxpayer, terming the idea "burden sharing". Institutions, however, deride cocos as "death spiral convertibles" as they switch to equity at the worst possible point. Many insurers and pension funds would also be forced sellers as portfolio rules often prevent them from holding shares. The ABI added that the instruments have none of the growth potential of equity or the defensive qualities of bonds, and could jeopardise the investments of millions of savers and pensioners. Banks (SBK.NX - news) may have to pay far higher rates to attract investors, which would reduce returns and make it harder to raise equity. Bob Diamond, Barclays (LSE: BARC.L - news) chief executive, said yesterday that returns on equity over the coming years will already fall to 4pc-6pc, from around 12pc. However, ratings agency Standard & Poor's reckons banks globally need to raise $1 trillion of cocos in the next five to 10 years, making a strong investor base essential. Regulators are encouraging banks to increase the pool of investors by paying bonuses in cocos instead of shares. Quote Share this post Link to post Share on other sites
yorkshireman Report post Posted January 12, 2011 http://uk.finance.yahoo.com/news/Cocos-destabilise-recovery-tele-1843257214.html?x=0 Philip Aldrick, 17:37, Wednesday 12 January 2011 New debt instruments designed to shore up the banking system could destabilise insurers and pension funds and restrict the supply of credit to the economy, the Association of British Insurers (ABI) has warned. Insurers have "limited appetite" for contingent capital (cocos) or bail-in bonds, both of which are securities that convert to equity when a bank is in distress, the ABI wrote to the European Union financial services chief Michel Barnier. "There is a risk these measures will restrict banks' access to finance, with consequential reductions in banks' capacity to finance the recovery." Regulators see the new instruments as central to a reorganisation of banking by allowing lenders to recapitalise in a crisis without tapping the taxpayer, terming the idea "burden sharing". Institutions, however, deride cocos as "death spiral convertibles" as they switch to equity at the worst possible point. Many insurers and pension funds would also be forced sellers as portfolio rules often prevent them from holding shares. The ABI added that the instruments have none of the growth potential of equity or the defensive qualities of bonds, and could jeopardise the investments of millions of savers and pensioners. Banks (SBK.NX - news) may have to pay far higher rates to attract investors, which would reduce returns and make it harder to raise equity. Bob Diamond, Barclays (LSE: BARC.L - news) chief executive, said yesterday that returns on equity over the coming years will already fall to 4pc-6pc, from around 12pc. However, ratings agency Standard & Poor's reckons banks globally need to raise $1 trillion of cocos in the next five to 10 years, making a strong investor base essential. Regulators are encouraging banks to increase the pool of investors by paying bonuses in cocos instead of shares. Whatever happened to simple accounting, like you see in any well run company ? Credits on one side, debits on the other and a cash book to balance. Maybe too simplistic a view, but at least you know where you are. Think I;ll have a nice cup of coco and turn in. Good night all. Quote Share this post Link to post Share on other sites
Alan B'Stard MP Report post Posted January 12, 2011 Whatever happened to simple accounting, like you see in any well run company ? Credits on one side, debits on the other and a cash book to balance. Maybe too simplistic a view, but at least you know where you are. Think I;ll have a nice cup of coco and turn in. Good night all. Mmmm....thats sounds more like a well run lemonade stand. Quote Share this post Link to post Share on other sites
General Congreve Report post Posted January 12, 2011 Whatever happened to simple accounting, like you see in any well run company ? Credits on one side, debits on the other and a cash book to balance. Maybe too simplistic a view, but at least you know where you are. Think I;ll have a nice cup of coco and turn in. Good night all. You sit in with coco if you want, but it all sounds a bit dull for me and my bankster buddies, we're heading off down the casino instead! Quote Share this post Link to post Share on other sites
Prescience Report post Posted January 12, 2011 Eerily reminiscent of Lloyds insurance underwriting, in the good old days............ Need to shore up your dodgy underwriting risks? Simple! Con loads of the celebs and sports personalities to enjoy the cachet of being a Lloyd's member! Come to a celebrity piss up! After we've filled your rotting guts with cheap champagne and inferior food, sign here on the dotted line and stand the chance (Certainty) you'll lose your house, savings, pension fund and shirt buttons so we can continue not managing our business properly and still go to Ascot, Henley, Le Mans, Monaco as before and throw money around like confetti! You know it makes sense.......... Quote Share this post Link to post Share on other sites
