RBS to follow Barclays with CoCo issue

By Aimee Donnellan

Mon Feb 25, 2013 12:37pm EST

LONDON, Feb 25 (IFR) - Royal Bank of Scotland will announce on Thursday that it is looking to issue contingent convertible (CoCo) notes in the future, a person close to the situation told IFR on Monday.

"RBS is looking to sell a mixture of CoCos and Lower Tier 2 notes to increase its capital buffers in the coming years," said the source.

CoCos convert into equity, or lose value, if the issuer's capital holdings fall below a predetermined level - and thus are much riskier than traditional bonds and bank debt capital.

RBS looks to follow Barclays, whose new chief executive Antony Jenkins said earlier this month that his bank would build contingent capital "over the next few years" and that he expects loss-absorbing capital instruments to cover about 2% of its risk-weighted assets (RWAs).

RBS has refrained from issuing CoCos and has instead focused its funding efforts on raising capital through the subordinated bond markets. The bank declined to comment on the matter.

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