© Reuters. Participants attend an Asian investment conference held by Credit Suisse in Hong Kong, China, March 21, 2023. REUTERS/Tyrone Siu
By David Barbuscia
NEW YORK (Reuters) – Bond giant PIMCO lost about $340 million on a category of Credit Suisse bonds that were wiped out by the UBS takeover, and the U.S. investment manager’s overall exposure to the Swiss lender amounts to billions, a source familiar with the situation told.
Swiss authorities decided on Sunday to write off about $17 billion of Credit Suisse’s additional Tier 1 (AT1) debt under an agreement in which shareholders received $3.23 billion. Shareholders generally rank below bondholders in terms of who gets paid when a bank or company fails.
Credit Suisse’s Additional Tier 1 (AT1) bonds in PIMCO mutual funds were worth about $340 million on Friday, the source familiar with the matter said.
PIMCO’s current holdings of Credit Suisse bonds, excluding AT1 debt, were worth more than $4 billion, said the source, who spoke on condition of anonymity.
Losses in AT1 securities have been offset by gains in PIMCO’s holdings of other bonds issued by the Swiss lender, whose value rose after a bailout merger with UBS, the source said.
AT1s are a type of contingent convertible debt that are part of the capital buffers that regulators require banks to hold to protect themselves in times of market turbulence.
US-based Pacific Investment Management Co (PIMCO) manages more than $1.7 trillion in assets.
Some Credit Suisse bonds rallied Monday after the embattled lender’s state-backed bailout.
The price of nearly $2 billion in notes due 2026, for example, jumped from 66 cents on Friday of last week to 87.5 cents on Monday, according to Tradeweb data.
AT1 bonds issued by other European banks, by contrast, fell sharply on Monday as Credit Suisse’s treatment of AT1 bondholders highlighted the risks of investing in these securities.
European regulators tried to stem the market slide by saying that the owners of this type of debt would only suffer losses after the shareholders were eliminated, unlike what happened at Credit Suisse.
Meanwhile, the Quinn Emanuel Urquhart & Sullivan law firm said it was speaking with several Credit Suisse AT1 holders about possible legal action.
