PIMCO lost $340 million with Credit Suisse AT1 bond write-off – source

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

Swiss authorities decided on Sunday to write off about $17 billion of Credit Suisse’s additional debt (AT1) in a deal that 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 fund 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 more than $4 billion, said the source, who spoke on condition of anonymity.

Losses on the AT1 paper have been offset by gains in PIMCO’s holdings of other bonds issued by the Swiss lender, which have risen in value following a rescue merger with UBS ( UBSG.S ), the source said.

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

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

Some Credit Suisse bonds rose on Monday after the state-backed bailout of the troubled lender.

The price of nearly $2 billion in notes due 2026, for example, 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 disruption, saying owners of this type of debt would suffer losses only 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.

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

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