How Santander Call Confusion Is Roiling $340 Billion CoCo Market

Banco Santander SA has a $340 billion corner of the debt market on tenterhooks. In the coming days, Spain’s biggest lender has a first opportunity to announce a call, or repurchase, of some of its riskiest bonds. While most investors expect banks to trigger such options, Santander has so far stayed silent on the subject, raising market tension. For while the decision is only over 1.5 billion euros ($1.7 billion) of so-called Additional Tier 1 notes, it has the potential to set an industrywide precedent and roil the entire market. The bank has said it has until Feb. 12 to issue a call notice.

The Santander call option has become a test case for AT1 contingent-convertible debt, or CoCos, because the securities involved were some of the first to be issued in a market that only came into existence in 2014.