Banking Crisis

Wipeout Of Credit Suisse's "AT1" Bonds Hits Asset Managers, Stirs Possible Litigation – Media

Tom Burroughes Group Editor 22 March 2023

Wipeout Of Credit Suisse's

The Additional Tier 1 bonds were created around the time of the eurozone debt crisis more than a decade ago as a way for banks to acquire capital buffers. They are relatively high risk in terms of their seniority. Under the terms of the UBS takeover of Credit Suisse, at the behest of Swiss authorities, holders of AT1s have been wiped out.     

PIMCO, the US fixed income asset manager, BlackRock and Invesco are among the most prominent losers from AT1 debt issued by Credit Suisse having been wiped out in the UBS takeover of the embattled Swiss rival at the weekend, according to Reuters.

The news service, citing unnamed sources, said PIMCO lost about $340 million on its holdings of AT1 debt issued by Credit Suisse. The fund manager had about $807 million of the notes, while Invesco held about $370 million. Losses may have been partially offset by holdings of senior bank bonds, which rose. Dealers at banks including JP Morgan and Morgan Stanley have been buying CS AT1 debt for around 2 cents on the dollar and selling at around 5 cents, reports said. 

California-headquartered Pacific Investment Management Co, to give PIMCO’s full name, and Invesco are among the largest holders of Credit Suisse’s Additional Tier 1 bonds that were wiped out after the bank’s takeover by UBS. 

The Credit Suisse notes are set to fall to zero and were quoted at prices of a few cents on the dollar yesterday. Because of the Swiss government’s support of the UBS takeover, it will cause a complete write-down of SFr16 billion ($17.3 billion) of the bank’s AT1 bonds in order to increase core capital. The write-down has prompted criticism, as holders of some equities appear to have gained more protection than holders of the ATIs.

A report by Bloomberg earlier this week said that Invesco holds around $370 million of Credit Suisse’s AT1 debt. BlackRock reduced some of its holdings in the first two weeks of March, WealthBriefingAsia and WealthBriefing understand.  

PIMCO and Invesco have not responded to this news service's requests for comment. BlackRock declined to comment.

Bloomberg said some holders of the bank’s AT1 bonds are preparing to push back on the regulator’s decision to write off the debt. Traders at Goldman Sachs are preparing to take bids on claims against Credit Suisse that could see investors recover some value, potentially through litigation.

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