Fixed income giant PIMCO lost around $340 million on a class of Credit Suisse bonds that were wiped out by takeover by UBS, with the US investment manager’s overall exposure to the Swiss lender running into billions, said a source familiar with the situation.
Swiss authorities decided on Sunday to write off some $17 billion in AT1 (Additional Tier 1) debt from Credit Suisse, as part of a deal that provides shareholders with $3.23 billion. Shareholders are generally worse off than bondholders in terms of who gets paid if a bank or company fails.
Credit Suisse Additional Tier 1 (AT1) bonds in PIMCO mutual funds were worth around $340 million on Friday, according to the person familiar with the matter.
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 on AT1 securities were offset by gains made by PIMCO on other bonds issued by the Swiss creditor, which rose in value following 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 from banks for timely protection from market turbulence.
The American company Pacific Investment Management Co (PIMCO) manages more than 1.7 trillion dollars in assets.
Some Credit Suisse bonds advanced on Monday following the state-backed bailout of the troubled creditor.
The price of nearly $2 billion in bonds maturing in 2026, for example, 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, on the contrary, fell sharply on Monday, as the treatment of Credit Suisse AT1 bondholders highlighted the risks associated with investing in these securities.
European regulators tried to stem the market rout by saying that holders of this type of debt would only suffer losses following the shareholders were eliminated, unlike what happened at Credit Suisse.
Meanwhile, law firm Quinn Emanuel Urquhart & Sullivan said it was talking to a number of Credit Suisse AT1 bondholders regarding possible legal action.
