Hybrid issuance suffers amid Basel confusion

High interest rates relative to other forms of debt make hybrid securities issued by banks an attractive investment opportunity. But with regulatory changes to what constitutes core capital looming, could hybrid issuance be on its way out?

Mark Benstead, Axa: hybrids from insurers have performed well

When Lloyds Banking Group launched a £5.7 billion deal in November last year, it seemed to herald a new start for hybrid issuance. In the first deal of its kind, Lloyds’ contingent capital or ‘CoCo’ bond featured a trigger for conversion into equity if the bank’s core tier 1 capital ratio falls below 5%. The bond met with healthy demand from investors.

But despite the UK bank’s success, the hybrid markets remained deathly quiet during the traditionally busy first two months of 2010, with the