Struggling Credit Suisse to pay nearly 10% bond rate

Credit Suisse is expected to pay near double-digit interest rates for its latest bond issue as investors demand hefty compensation from the beleaguered bank.

The Swiss lender must pay 9.75% interest on its new debt which will be sold on Thursday evening, according to people familiar with the matter.

The bank will raise at least $1.5 billion and its bond offering comes amid a sell-off in financial markets as major central banks raise interest rates in a bid to rein in spiraling l ‘inflation.

“This is the first time in ages that we’ve seen an almost double-digit coupon,” said one bond investor. “We had forgotten what a double digit looks like, but this one is really close.”

Credit Suisse has gone from crisis to crisis over the past two years, exposing poor risk management and controls at the Zurich-based lender. The implosion of Greensill Capital forced the bank to close $10bn in funds linked to the troubled group and weeks later it suffered a record $5.5bn trading loss following the collapse of Bill Hwang’s Archegos family office.

Last month, the UK financial regulator placed the bank on a watchlist of groups needing stricter oversight.

The problems hit Credit Suisse’s share price and contributed to three profit warnings. Rating agencies Fitch and S&P both downgraded the bank’s rating last month.

Credit Suisse is raising funds through new Additional Tier 1 (AT1) bonds. AT1 bonds are sometimes called “contingent convertibles” or cocos because they can be converted into stocks in times of crisis. In 2011, the Zurich-based bank became the first to issue such debt and Thursday’s offering is expected to replace the last of those bonds which pay 7.125% interest and are redeemable next month.

“They’ve decided they want to buy back even though it’s a bit more expensive… With all the negative news flow and anger they might get from investors, they want to show they’re a investor-friendly bank,” the investor added. The new Credit Suisse AT1 bonds will not convert to equity if the bank’s capital adequacy ratio falls below regulatory standards, but will instead be written down.

Swiss private bank Julius Baer and Sweden’s SEB have both raised dollar-denominated AT1 debt in recent weeks at interest rates of 6.875%, well below those of Credit Suisse.

Comments are closed.