NEW YORK (Reuters) – Bond giant Pimco lost about $340 million in a class of Credit Suisse notes wiped out by its takeover by UBS (UBSG.S), with the U.S. investment manager generally exposed to the Swiss lender. A source familiar with the situation said in billions.
Swiss authorities decided on Sunday to cancel $17 billion worth of additional Credit Suisse Tier 1 (AT1) debt under a deal that saw shareholders receive $3.23 billion. Shareholders usually rank lower than bondholders in terms of who gets paid when a bank or company fails.
The Credit Suisse additional Tier 1 (AT1) notes in Pimco’s mutual funds were worth about $340 million on Friday, the source familiar with the matter said.
The source, who spoke on condition of anonymity, said Pimco’s current holdings of Credit Suisse bonds, excluding AT1 debt, are worth more than $4 billion.
The source said losses in AT1 securities were offset by gains in PIMCO’s holdings of other bonds issued by the Swiss lender, which rose in value after the rescue merger with UBSG.S (UBSG.S).
AT1s are a type of emergency convertible debt that is part of the capital reserves that regulators require banks to hold to protect themselves in times of market turmoil.
The US-based Pacific Investment Management Company (PIMCO) manages over $1.7 trillion in assets.
Some Credit Suisse bonds rebounded on Monday after the state-backed bank’s bailout.
For example, the price of nearly $2 billion in notes due in 2026 jumped from 66 cents on Friday last week to 87.5 cents on Monday, according to Tradeweb data.
AT1 bonds issued by other European banks, instead, dropped sharply Monday’s transaction with Credit Suisse AT1 bondholders highlighted the risks of investing in these securities.
European regulators tried to halt the market rout, saying that holders of this type of debt would only incur losses after eliminating shareholders – unlike at Credit Suisse.
Meanwhile, law firm Quinn Emanuel Urquhart & Sullivan said it is speaking to a number of Credit Suisse AT1 holders about potential legal action.
Banking sector analysis
Reporting by Davide Barbuscia. Editing by Megan Davies and Simon Cameron-Moore
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