PIMCO lost $340 mln with Credit Suisse AT1 bonds write-off - source

Participants attend an Asian investment conference held by Credit Suisse in Hong Kong
Participants attend an Asian investment conference held by Credit Suisse in Hong Kong, China March 21, 2023.

NEW YORK, March 20 (Reuters) - Bond giant PIMCO lost about $340 million on a category of Credit Suisse bonds that were wiped out by the takeover by UBS (UBSG.S), with the American investment manager's overall exposure to the Swiss lender running into billions, a source familiar with the situation said.

Swiss authorities on Sunday decided to wipe out some $17 billion worth of Credit Suisse's Additional Tier 1 (AT1) debt under a deal which saw shareholders receive $3.23 billion. Shareholders usually rank below bondholders in terms of who gets paid when a bank or company collapses.

Credit Suisse's (CSGN.S) Additional Tier 1 (AT1) bonds in PIMCO’s mutual funds had been worth about $340 million on Friday, the source familiar with the matter said.

PIMCO's current holdings of Credit Suisse bonds, excluding the AT1 debt, were worth over $4 billion, said the source, who was speaking on condition of anonymity.

Losses on the AT1 securities have been offset by gains in PIMCO's holdings of other bonds issued by the Swiss lender, which have gone up in value after a rescue merger with UBS (UBSG.S), said the source.

AT1s are a type of contingent convertible debt that make up part of the capital buffers that regulators require banks to hold to protect themselves in times of market turmoil.

U.S. based Pacific Investment Management Co (PIMCO) manages over $1.7 trillion in assets.

Some Credit Suisse bonds rallied on Monday after the state-backed rescue of the embattled lender.

The price of nearly $2 billion in notes due in 2026 , for instance, 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, fell sharply on Monday as the treatment of Credit Suisse AT1 bondholders highlighted the risks of investing in these securities.

European regulators tried to stop the market rout saying owners of this type of debt would only suffer losses after shareholders have been wiped out - unlike what happened at Credit Suisse.

Meanwhile, law firm Quinn Emanuel Urquhart & Sullivan said it was talking to a number of Credit Suisse AT1 holders about possible legal action.

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Reporting by Davide Barbuscia; editing by Megan Davies & Simon Cameron-Moore

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Davide Barbuscia covers macro investment and trading out of New York, with a focus on fixed income markets. Previously based in Dubai, where he was Reuters Chief Economics Correspondent for the Gulf region, he has written on a broad range of topics including Saudi Arabia’s efforts to diversify away from oil, Lebanon’s financial crisis, as well as scoops on corporate and sovereign debt deals and restructuring situations. Before joining Reuters in 2016 he worked as a journalist at Debtwire in London and had a stint in Johannesburg.