New York (Reuters) – Allianz fund subsidiary Pimco has lost around $340 million on bonds issued by major Swiss bank Credit Suisse (CS) that have become worthless, according to an insider.
With this value, so-called AT1 bonds from CS were still on the books of Pimco’s investment funds on Friday, the insider told the Reuters news agency. The Swiss financial market supervisory authority Finma had surprisingly declared the compulsory convertible bonds with a total volume of CHF 16 billion as additional core capital (AT1) to be worthless in the course of the emergency takeover by rival UBS. In contrast, the CS shareholders will receive UBS shares worth three billion Swiss francs.
However, Pimco’s losses on the AT1 papers were offset by gains on other CS bonds, which appreciated significantly in the course of the merger, the insider said. Pimco – without the AT1 bonds – has CS bonds worth more than four billion dollars in its portfolio. For example, a nearly $2 billion CS issue due 2026 rose to 87.5 from 66 cents on Monday, according to data from Tradeweb. With $1.7 trillion in assets under management, Pimco is one of the largest asset managers in the world and is considered a bond specialist.
AT1 bonds – also known as “CoCo-Bonds” – serve as an additional capital buffer for banks and can be written off if the Tier 1 capital ratio falls below a certain threshold. Normally, however, the shareholders lose their stake first – at CS, the Swiss supervisors decided differently, which led to displeasure among many investors. Law firm Quinn Emanuel Urquhart & Sullivan says it is in talks with a number of CS AT1 bond investors about potential lawsuits. The banking supervisory authorities in the EU emphasized that in the event of bank rescues there, AT1 investors would still only be asked to pay after the shareholders.
(Report by Davide Barbuscia; Written by Alexander Hübner. Edited by Olaf Brenner. If you have any questions, please contact our editorial team at [email protected] (for politics and the economy) or [email protected] (for companies and markets).)
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