Credit Suisse shareholder opposes co-cos

 
City A.M. Reporter
Swiss activist investor Ethos wants shareholders to oppose Credit Suisse issuing conditional capital to help it meet tough new rules, saying it should instead sell its investment bank's trading activities.

Ethos, a group of more than 100 institutional investors promoting sustainable development, urged shareholders to reject the creation of conditional capital to cover the contingent convertible bonds (CoCos) Credit Suisse issued in February.

Ethos executive director Dominique Biedermann said Credit Suisse should sell the investment bank's trading activities, which would mean it would not need to issue CoCos.

"If they stop this kind of activity now, the need for capital would be less important," he told Reuters. "You see that there is an economic loss long-term. Do we really want our capital to be used for activities that produce nothing?"

Under strict new capital rules drawn up after the crisis, Switzerland has encouraged its two biggest banks – UBS and Credit Suisse – to issue CoCo bonds which boost capital by converting into equity if a bank runs into trouble.

Financiers have said the tough Swiss regulations could put the country's banks at a disadvantage to their international rivals, raising questions about whether they can continue to compete in investment banking.

Credit Suisse said it had worked closely with Swiss authorities on the use of CoCos and played a lead role in a creation of the market for the bonds.

"Credit Suisse finds it simply incomprehensible that Ethos is not supporting these efforts to build a more stable financial system," the bank said in a statement.

"We are fully convinced that our measures are also in the interests of our shareholders, since any other form of capital increase would have a direct dilutive effect."

Funds affiliated to Ethos only own about 0.1 per cent of Credit Suisse's share capital but the group is influential among institutional investors and managed to persuade about a third of the bank's shareholders to reject its bonus policy last year.

Credit Suisse shares were down two per cent at noon while UBS was off 0.6 per cent.