Credit Suisse sells $6bn bonds in Middle East
CREDIT Suisse Group, Switzerland's second-biggest bank, agreed to sell about 6bn Swiss francs (€4.5bn) of contingent convertible bonds to existing shareholders in Qatar and Saudi Arabia.
The notes will be issued to Qatar Holding and The Olayan Group no earlier than October 2013, in exchange for cash or Tier 1 capital notes the bank sold to the investors in 2008, the Zurich-based company said in a statement yesterday.
Credit Suisse rose 3.8pc in Swiss trading. A government-appointed committee proposed in October that UBS and Credit Suisse, the country's biggest banks, should hold almost double the capital required under the Basel III rules and use contingent convertible bonds to satisfy part of the requirement. The so-called CoCos automatically become equity when reserves fall below preset levels.
"It's certainly positive to see that there is a market for these bonds, which has been put in doubt before," said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets.
"It is strange, though, that Credit Suisse felt the need to do this now, before any guidelines about these instruments have been finalised. It looks like they came under time pressure."
Banks may struggle to raise the more than $1 trillion in contingent convertible bonds needed to replace existing capital securities over the next five to 10 years, Standard & Poor's said in a recent report. Some investors have said CoCos won't sell because they inflict losses on holders in a crisis.
Credit Suisse said it would like to see the market for contingent convertible bonds expand and is pursuing an additional offering to potential investors outside the US and certain other countries.
The bank will hold investor presentations this week in what would be the first test of incremental demand among outside investors for such securities by a publicly traded lender.
The bank cut its 2010 dividend by 35pc last week and lowered its target for return on equity in the next three to five years to more than 15pc from more than 18pc previously in response to stricter capital rules, which take effect in 2019.
Credit Suisse is up 14pc this year, compared with a 20pc gain in UBS and a 12pc increase in the 48-company Bloomberg Europe Banks and Financial Services Index.
"We have worked in close cooperation with our primary regulator, Finma, to ensure the buffer capital notes will qualify under future Swiss capital rules as contingent capital," CEO Brady Dougan said.
''This announcement may well give the market some confidence that contingent capital, or CoCos, will become a substantial part of bank capital and that there will be sufficient demand for the product from investors," Gary Jenkins, head of fixed income at Evolution Securities in London, wrote. (Bloomberg).