Thursday, Feb 17, 2011
(Adds Swiss National Bank, source and analyst's comment.)
By Katharina Bart
Of DOW JONES NEWSWIRES
ZURICH (Dow Jones)--Credit Suisse Group (CS) Thursday said it placed $2 billion of a new type of safety capital endorsed by the Swiss National Bank in the public market, shortly after selling 6 billion Swiss francs ($6.32 billion) of the bonds to existing investors.
The Zurich-based bank said it sold contingent convertible bonds--known as a cocos--to yield 7.875%, in line with Dow Jones Newswires reports earlier in the day citing sources. Credit Suisse sold the bonds to investors outside the U.S. A spokesman for the bank declined to specify the buyers or detail demand for the instruments.
The bonds will be callable after five-and-a-half years, and has a final maturity date in 2041. They convert to common shares if Credit Suisse's core Tier 1 capital or common equity Tier 1 ratio falls below 7%.
A source familiar with the situation said the issue was oversubscribed.
"We are pleased to have successfully completed this next step in our capital plan to transition to the new Swiss regulatory standards well ahead of time," Credit Suisse Chief Executive Brady Dougan said in a statement.
As the first public sale of cocos by a major European bank, Thursday's placement is being closely watched by other banks, which are likely to tap investors with the same type of capital instruments.
The reception Credit Suisse's bonds met with is an encouraging sign, analysts with Barclays Capital said.
"We view the market's supportive reaction to Credit Suisse's Tier 2 coco issue as a positive development for both Credit Suisse and the nascent coco market as a whole," Barcap analyst Jeroen Julius said. In particular, Credit Suisse's success bodes well for similar instruments launched by U.K.-based Lloyds Banking Group PLC (LYG) late in 2009, Julius said.
Credit Suisse Monday sold CHF6 billion of cocos to the government of Qatar and Saudi Arabia's wealthy Olayan family, both big shareholders in the bank. Thursday's issue marks the first public sale of this new and largely untested type of capital instrument that automatically converts into equity capital when a bank's common equity ratio drops below a certain level.
The bond issue counters investor concerns about a coco bond market emerging at all. Switzerland is the first country to call for them, and its big banks have reacted differently. While Credit Suisse has voiced confidence in a coco market forming, rival UBS has in the past said it prefers to bolster its capital by other methods rather than cocos.
Cocos form a major part of a raft of measures set up by the Swiss National Bank and bank regulator Finma--in cooperation with Credit Suisse and UBS AG (UBS)--to better insulate Switzerland's economy from the collapse of one or both its major banks. The Swiss National Bank wasn't immediately available to comment on Thursday's issue.
-By Katharina Bart, Dow Jones Newswires; +41 43 443 8043; katharina.bart@dowjones.com
(Irene Chapple and Art Patnaude contributed to this item from London)
(END) Dow Jones Newswires
17-02-11 1834GMT
