PIMCO, one of the world’s largest bond investment firms, has reportedly lost about $340 million on a type of Credit Suisse bonds that were wiped out during UBS’s takeover, according to a source familiar with the matter. The American investment manager’s overall exposure to the Swiss lender is running into billions, despite the substantial loss. Swiss authorities made the decision to write off roughly $17 billion worth of Credit Suisse’s Additional Tier 1 (AT1) debt on Sunday, which led to shareholders receiving $3.23 billion. The move raised concerns about the hierarchy of payouts between bondholders and shareholders when banks or companies collapse.
The loss incurred by PIMCO highlights the risks that investors face in the AT1 market, which offers high yields in exchange for higher risks. The bonds can be converted into equity when a lender’s capital level falls below a certain threshold, making them susceptible to volatility.
PIMCO is not the only investment firm to have been affected by the Credit Suisse bonds wipeout. Other investment firms such as AllianceBernstein, Amundi, and Federated Hermes have also been impacted.
The Swiss regulator’s decision to write off Credit Suisse’s AT1 debt has raised questions about the oversight of the bond market. Regulators are now looking into whether the bonds were inappropriately marketed to retail investors who may not have fully understood the risks involved.
The situation has also caused concerns about the broader impact on the banking industry and the availability of funding for other lenders. Some market observers worry that the decision may lead to a wider selloff of bank bonds and a tightening of lending conditions.
In conclusion, the writeoff of Credit Suisse’s AT1 debt has had far-reaching consequences for the banking industry and investors alike. PIMCO’s loss highlights the risks involved in the AT1 market, and regulators are now examining the marketing of these bonds to retail investors. The impact of this event on the broader banking industry remains to be seen, but some fear that it may have wider implications for the availability of funding.