Who’s going loco over Credit Suisse’s cocos? Here are the losers of the AT1 bond write-off
Bond markets were sent into a spin across Europe this week after the move from Swiss regulator Finma to wipe out $17bn of Credit Suisse’s AT1, or contingent convertibles (coco), as part of a rescue deal from its rival UBS.
According to standards set in the wake of the 2008 financial crisis, holders of AT1 bonds rank above equity holders in the creditor hierarchy.
The move from Finma rocked the $275bn AT1 bond market this week and prompted fast legal threats, with litigation firm Quinn Emanuel Urquhart & Sullivan saying it had now put together a multi-jurisdictional team of lawyers from Switzerland, the US and the UK to potentially act on behalf of the burnt bondholders.
The European Central Bank and Bank of England rushed to issue soothing statements, reiterating the priority of AT1 bondholders over shareholders in a bid to stem a sell-off in bank debt.
The losers of the Credit Suisse bond wipeout
A number of fund issuers, who are forced to disclose their positions, have been revealed as big holders of Credit Suisse’s AT1 bonds. However, as one source close to the firms tells City A.M., these are likely to be “just the tip of the iceberg”.
US investment giant Pimco is reportedly among the biggest losers of the bond obliteration by Finma.
California-based Pimco lost about $340m on the bonds, with the American investment manager’s overall exposure to the Swiss lender running into billions, Reuters reported this week.
The firm’s total holdings of Credit Suisse bonds, excluding the AT1 debt, were worth over $4bn, a source told the news agency. However, its losses on AT1 bonds have reportedly been pared back by gains in PIMCO’s holdings of other bonds issued by the Swiss lender, which have gone up in value since UBS’s rescue swoop.
US investment giant Invesco is also reportedly among the firms nursing heavy losses after the UBS rescue deal.
The US investment giant held around $370m worth of AT1 bonds prior to the Credit Suisse’s rescue, Bloomberg reported yesterday.
The world’s biggest asset manager BlackRock is also understood to have held around $113m worth of the AT1 bonds.
However, City A.M. understands the firm had begun to unwind its exposures at the beginning of March Blackrock as fears over the banks’ stability began to spread.
Pimco, Invesco and Blackrock were contacted for comment.