I should CoCo?

Lloyds Banking Group's use of a contingent capital debt exchange earlier this month has led many to speculate whether other banks could follow suit in an attempt to appease regulators' liquidity concerns. If this happens, it's likely to result in more advisory business for investment banks, so what people will be needed to work on these deals?

The deal, which saw Lloyds launch a 7.5bn exchange of existing debt for contingent capital instruments, mandated a number of investment banks - including Bank of America Merrill Lynch, Citi, JP Morgan Cazenove and UBS. And, it seems, a broad range of skills are also required to take on such a project.

Antoine de Guillenchmidt, head of EMEA equity-linked at Morgan Stanley, says the increasingly complex capital requirements of financial institutions and corporate issuers mean investment bankers in capital markets and corporate finance functions cannot advise on capital needs without being knowledgeable, "across the spectrum of debt, hybrid, equity-linked and equity financing products."

But it's unlikely one individual would possess such an armoury. Lee Thacker, partner at executive search firm Silvermine Partners says advising on CoCo deals taps a number of investment banking divisions: "Equity advisory, hybrid capital, FI DCM and sales would all have been utilised," he says.

Whether this will lead to any additional hiring is questionable however: Thacker says most banks are already well staffed in these areas.

These products are not without their detractors, but Veenay Chheda, executive director of hybrid capital structuring at JP Morgan, said at a recent conference that CoCos - where debt converts to equity if capital reserves drop below a certain threshold - "is the preferred, if not the only, feature that demonstrates the loss absorbency in a stress situation that the regulators want to see."

Indeed, the Lloyds contingent capital deal is over-subscribed by 4bn.

Nonetheless, they face some hurdles, not least of which is the difficulty in assigning them a credit rating. Moody's has raised some concerns in a recent report, saying: "After reviewing the features of contingent capital securities, we may decide that they cannot be rated."