The interest rate on credit Suisse’s latest bond issue hit 10% as the bank seeks to pay out billions of dollars in compensation to investors.
Credit Suisse will issue $1.5bn of AT1 capital bonds later in the day, which convert to equity in times of stress, with a coupon of 9.75%, according to media reports on Thursday and people familiar with the matter said.The sale came as the Swiss National Bank raised interest rates for the first time in seven years and the bond market sell-off intensified.
One bond investor said it was the first time in years that he had seen a coupon near double digits. ‘We’ve forgotten what double digits look like, but this is very close.’
In recent weeks, Julius Baer, the Swiss private bank, and SEB, the Swiss Stock Exchange, have both issued DOLLAR-denominated AT1 bonds at 6.875 per cent, well below Credit Suisse.
They decided to redeem the bonds even if they were slightly more expensive, the investor added.Faced with negative news and anger from investors, they wanted to show they were an investor-friendly bank.If Credit Suisse’s capital ratios fall below regulatory standards, its new AT1 bonds will not convert into equity and will be written off.
Credit Suisse has endured a series of scandals and turmoil over the past two years, lurching from crisis to crisis and exposing its poor risk management.Last year, the bankruptcy of Greensill Capital forced the bank to close its $10bn Supply Chain Finance fund, which held Greensill bonds.Weeks later, the bank suffered a record $5.5bn loss from the collapse of Hedge fund Archegos, Bill Hwang’s family wealth management office.
Last month, Britain’s financial regulator put Credit Suisse on a watch list.
A series of problems have hit Credit Suisse’s share price and prompted three profit warnings this year.Ratings agencies Fitch and STANDARD & Poor’s both downgraded the bank last month, with Fitch cutting credit Suisse’s long-term issuer default rating to BBB+ from A- and S&P cutting credit Suisse’s credit rating to BBB from BBB+.