As posted yesterday in relation to the UBS takeover of Credit Suisse:
- 16bn CHF of high yield Additional Tier 1 (AT1) CS bonds will be written down to zero.
- These bonds were attractive when eurozone yields were zero/negative.
- Bank stocks are under pressure here in the region with concern over banks' bond exposures related to this write down of AT1s.
- AT1 bonds are a form of junior debt that counts towards banks' regulatory capital.
- They were designed as a way to transfer risks to investors and away from taxpayers if a bank gets into trouble.
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Reuters reports now that Pacific Investment Management Co (PIMCO), manager of circa $1.7tln in assets, lost about $340 million on the AT1 bonds. Reuters cite a source familiar with the situation.
Also:
- 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, said the source.
