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Bond giants Pimco and Invesco face crores of losses on rotten Credit Suisse loans

  • Some of the biggest names in fixed income are nursing their wounds after the Credit Suisse rescue.
  • Bond giants Pimco and Invesco have lost hundreds of millions of dollars, according to Bloomberg data.
  • They held AT1 bonds of Credit Suisse – which were marked zero by the Swiss regulator a week ago.

Some of the biggest names in fixed income investing have lost millions of dollars following the rescue of Credit Suisse by its rival UBS last week.

According to Bloomberg data, both Pimco and Invesco suffered heavy losses as they defaulted on additional Tier 1 bonds from the Swiss bank.

FINMA, which is Switzerland’s top financial regulator, marked down the value of all Credit Suisse AT1s to zero when the takeover of the troubled bank by UBS was confirmed.

It wiped out 16 billion francs ($17 billion) in value overnight – and left bond veterans nursing their wounds.

AT1s, also known as contingent convertible bonds or CoCos, are a riskier type of bank bond that offer a higher yield than assets that are typically considered safe, like government debt.

But the reason for those higher returns is that there is more risk attached to them – because the bank can choose to convert them into shares to increase its capital and repay its loans if its financial position falls below a certain level. can reduce.

Pimco had $807 million worth of Credit Suisse CoCos written off when the bank was rescued, according to Bloomberg – while Invesco had AT1 debt worth about $370 million at the time of the acquisition.

Asset management giant BlackRock also held $113 million in Credit Suisse CoCo bonds at the end of last month, according to Bloomberg data, and that may have been wiped out on Sunday.

Ten individual fixed-income funds also had more than $100 million invested in the bank’s AT1s, according to a CNBC article citing data from Refinitiv.

The data showed that First Trust, Nuveen, and Vanguard also had significant exposure to CoCo bonds.

Litigation firm Quinn Emanuel said on Monday it had put together a team of lawyers and was contacting AT1 bondholders about possible legal action over FINMA’s move.

But a previous comparable case shows that Pimco and Invesco are going to struggle to get their money back.

In 2017, Spain’s Banco Popular collapsed and wiped out both its shareholders and AT1 bondholders as part of its rescue by rival Banco Santander.

Some CoCo bondholders of the Spanish bank instructed Quinn Emanuel to take legal action on their behalf – but failed to win their case against the regulator.

Read more: The rescue of Credit Suisse had a sting in its tail for the banking crisis. Here’s all you need to know about AT1 bonds.


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