There Were Over $100 Million In Credit Suisse Bonds In These 10 Funds Now Worthless

In the wake of the lender's forced merger with its rival UBS, many funds may have to deal with losses totaling over $100 million on their investments in Credit Suisse.

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After Swiss regulators deemed Credit Suisse's additional tier-1 bonds (AT1) worthless as part of the emergency merger, according to Trade Algo analysis, trust funds face losses on Credit Suisse's AT1 bonds.

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Regulatory capital is composed of the additional tier-1 bonds that constitute part of the bank's regulatory capital. Whether these bonds are not issued, they can be written down to zero if the bank falls below a certain threshold in its capital ratio, for example.

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Credit Suisse and UBS' merger was seen by Swiss regulators as a trigger event that led to the revaluation of the bonds worth 16 billion Swiss francs (17 billion dollars) following the merger.

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In the following table, we have listed all the funds that held AT1 bonds with a par value of at least $100 million each, based on the latest snapshot from Refinitiv. At maturity, the par value of the bond is the amount an investor receives along with interest payments, depending on the term of the bond.

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Investors at Credit Suisse AT1

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• Pimco Income Fund

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• First Trust Preferred Securities And Income ETF

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• Nuveen Preferred Securities Fund

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• Vanguard High-Yield Corporate Fund

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• Pimco Gis Capital Securities Admin USD ACC

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• Pimco Gis Income E USD ACC

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• Invesco At1 Capital Bond Ucits ETF ACC

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• Algebris Financial Credit Fund

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• Principal Preferred Securities Fund

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• Alliancebernstein American Income

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A large chunk of the damage was borne by PIMCO's Income Fund, which holds bonds with a par value of $243 million (despite the fact that the total size of the fund is about $111 billion) but that has taken the biggest hit.

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According to Trade Algo's analysis, about 80 funds owned Credit Suisse AT 1 bond, whether they were managed directly by PIMCO or by one of its affiliates.

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The top AT1 bondholders with Credit Suisse on Trade Algo's list include funds managed by First Trust, Vanguard, Invesco, and Principal. The firms did not immediately respond to Trade Algo's request for comment on whether they hold AT1 bonds with Credit Suisse.

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Several of the firms that manage funds affected by the writedown, such as Pimco, Nuveen, Vontobel, and Fidelity, declined to comment on the issue.

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At the end of February, Swiss regulators gave the AT1 bonds a write-down, which angered bondholders, since their investments seemed to be lost, while shareholders will receive payouts. The AT1 bonds are usually written down before equity investments, and usually, equity investments are written down before AT1 bonds.

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It is our belief that the Swiss banking resolution framework may suffer long-term consequences from this policy error, as it introduces a significant amount of uncertainty regarding the actual hierarchical approach to the resolution of Swiss banks’ creditors, as well as their restructuring, as it is important to keep the credibility of the Swiss banking resolution framework in mind. A stock investor in AT1 bonds, Silvia Merler, who specializes in ESG and policy research, warned.