Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
PIMCO and Invesco Among Biggest Losers in Credit Suisse AT1 Bond Write Down
”Pacific Investment Management Co. and Invesco Ltd. are among the largest holders of Credit Suisse’s so-called Additional Tier 1 bonds that have been wiped out after the bank’s takeover by UBS Group AG.”
Swiss regulator FINMA declared a credit-event during the negotiations to trigger default of AT1/CoCo (contingent-convertible) bonds that are AHEAD of common stock in the capital structure. The rescue left some residual equity.
That of course, caused a selloff in ALL CoCo bonds in Europe.
The EU - ECB, SRB, EBA issued statements that what happened in Switzerland CANNOT happen in the EU (meaning that in the EU, the equity must be wiped out first, and then only the AT1/CoCo bonds). The BOE also issued a similar statement for the UK. But damage has been done to this CoCo class of bonds.
Jeffery Gundlach of DoubleLine wasn't into these bonds and tweeted LINK (with great hindsight):
"Jeffrey Gundlach @TruthGundlach · Mar 19 Bloomberg reports the gunslingers who foolishly kept holding Credit Suisse’s bail-in bonds are angry they are being wiped out. Seriously? Put on your big boy pants and look in the mirror. That’s where the “blame” lies. Learn how to manage risk!"
+1 Invesco bought Oppenheimer several years ago. Some of the excessive risk taking in fixed income appears to have come along for the ride. Relieved to have so little with them at this point. Suspect one fund I still own may have been adversely affected. A year ago it surely would have hurt quite a bit more. Hope somebody publishes a list of which specific funds got hammered / degree of exposure each had to these ”idiot bonds.”
I’ve added a story to the OP which cites Lazard and Fidelity among those with substantial holdings in these bonds.
On any investment, you reap what you sow. If you can't handle the risk, don't buy the product!!
BBG said last night that Goldman, JPM, and Citi are buying a bunch of CS bonds for like .02-.03 in the hopes of flipping them for a tiny amount (few pennies more) and/or getting more than that during potential lawsuits over the next year. Risky move? Who knows, but at that price even I'd do it for either a spec trade or to book a tax loss.
I am not sure that lawsuits will help. These bonds did have a clause that the Swiss FINMA could declare a credit-event and that decision will be irrevocable. But nobody thought that FINMA will do that for political convenience. I have read that Swiss did it to keep some if its Middle Eastern investors happy, but they won't be with 80-90% equity losses (some bought into, or added to, Credit Suisse just in Fall 2022). Remember, Saudis were even approached this time for a further rescue of Credit Suisse, but their very strong NO may have added to problems (in fairness to them, Saudis didn't want to go over 10% and then face lots of regulatory headaches). But in the process, the Swiss really made everybody unhappy - not only the AT1/CoCo bond holders, but the EU, the UK, and some US investors.
Just a few short weeks ago, Credit Suisse was offering corporate bonds at Schwab with tempting rates over what treasuries were at the time, ~5.26% I believe. I remember actually thinking about it. I think CS was rated A+ with, I thought, a good pedigree. Sure am glad now I didn't follow through.
I don't think that AT1 or CoCo bonds are approved by the SEC for the US market. Any regular Credit Suisse bonds would now be the responsibility of UBS. Of course, selling them before maturity could be a problem right now.
A guy on the Fidelity Investor Community (a closed/private group) had a similar question about the Credit Suisse Notes he/she bought through Fidelity. I responded with a similar comment.
Just a few short weeks ago, Credit Suisse was offering corporate bonds at Schwab with tempting rates over what treasuries were at the time, ~5.26% I believe. I remember actually thinking about it. I think CS was rated A+ with, I thought, a good pedigree. Sure am glad now I didn't follow through.
GFC pay-to-play antics aside, that's just another reason why I tend to ignore 'ratings' by so-called 'agencies'. Sure, I might miss out on something good, but by the same token, in such things I feel more comfortable with my own Spidey Sense and due diligence. And when it comes to banks, I still don't trust them - or like them as investments - so I don't have any direct investments in them.
Note how quickly the 'agencies' began to re-evaluate their opinions* on various banks in recent days. All of a sudden? Gee, isn't that ironic?
“In particular, common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier 1 be required to be written down. This approach has been consistently applied in past cases and will continue to guide the actions of the SRB [Single Resolution Board] and ECB [European Central Bank] banking supervision in crisis interventions,” their statement read.
And
The Bank of England has also distanced itself from FINMA’s decision, stating that the U.K. “has a clear statutory order” detailing which shareholders and creditors were expected to take on losses. AT1 bonds “rank ahead” of equity investments, the statement noted, adding that they had followed this process in the unwinding of SVB UK.
Haven't seen any comments from our side of the globe.
Well, JPM has but people say that's "because" it may hold some AT1/CoCo bonds itself. Of course, we have the hindsight-wiser Gundlach/DL saying that investors should have known (about how the Swiss FINMA would act?). https://twitter.com/jeuasommenulle/status/1638095409678540800
Comments
That of course, caused a selloff in ALL CoCo bonds in Europe.
The EU - ECB, SRB, EBA issued statements that what happened in Switzerland CANNOT happen in the EU (meaning that in the EU, the equity must be wiped out first, and then only the AT1/CoCo bonds). The BOE also issued a similar statement for the UK. But damage has been done to this CoCo class of bonds.
Jeffery Gundlach of DoubleLine wasn't into these bonds and tweeted LINK (with great hindsight):
"Jeffrey Gundlach
@TruthGundlach
·
Mar 19
Bloomberg reports the gunslingers who foolishly kept holding Credit Suisse’s bail-in bonds are angry they are being wiped out. Seriously? Put on your big boy pants and look in the mirror. That’s where the “blame” lies. Learn how to manage risk!"
I’ve added a story to the OP which cites Lazard and Fidelity among those with substantial holdings in these bonds.
BBG said last night that Goldman, JPM, and Citi are buying a bunch of CS bonds for like .02-.03 in the hopes of flipping them for a tiny amount (few pennies more) and/or getting more than that during potential lawsuits over the next year. Risky move? Who knows, but at that price even I'd do it for either a spec trade or to book a tax loss.
A guy on the Fidelity Investor Community (a closed/private group) had a similar question about the Credit Suisse Notes he/she bought through Fidelity. I responded with a similar comment.
Note how quickly the 'agencies' began to re-evaluate their opinions* on various banks in recent days. All of a sudden? Gee, isn't that ironic?
* which is really all the 'ratings' are
EU and England react: https://www.cnbc.com/2023/03/20/17-billion-of-credit-suisse-bonds-worthless-following-ubs-takeover.html And Haven't seen any comments from our side of the globe.
https://twitter.com/jeuasommenulle/status/1638095409678540800
not healthy