PIMCO loses $340 million on Credit Suisse bonds

NEW YORK - Bond giant PIMCO lost about $340 million on a category of Credit Suisse bonds that were wiped out by UBS, with the American investment manager's exposure to the Swiss lender running into billions, a source familiar with the situation said.

Swiss authorities on Sunday decided to wipe out more than $17 billion worth of Credit Suisse's Additional Tier 1 AT 1 debt under a deal that saw shareholders receive $3.23 billion. When a bank or company collapses, shareholders rank above bondholders in terms of who gets paid.

Credit Suisse's additional Tier 1 AT 1 bonds in PIMCO mutual funds had been worth about $340 million on Friday, the source familiar with the matter said.

PIMCO's current holdings of Credit Suisse bonds, excluding AT 1 debt, were worth over $4 billion, said the source, who was speaking on condition of anonymity.

The loss on AT 1 securities has been offset by gains in PIMCO's holdings of other bonds issued by the Swiss lender, which went up in value after a rescue merger with UBS, said the source.

AT 1 s are a type of contingent convertible debt that make up part of the capital buffers that regulators require banks to hold in times of market turmoil.

U.S. based Pacific Investment Management Co PIMCO manages over $1.7 trillion in assets.

After the state-backed rescue of the embattled lender, some Credit Suisse bonds rallied on Monday.

The price of almost $2 billion in notes due in 2026 jumped from 66 cents on Friday to 87.5 cents on Monday, according to Tradeweb data.

The treatment of Credit Suisse AT 1 bondholders highlighted the risks of investing in these securities, but the yields of bonds issued by other European banks fell sharply on Monday.

European regulators tried to stop the market rout by saying that the owners of this type of debt would only suffer losses after shareholders were wiped out - unlike what happened at Credit Suisse.

The law firm Quinn Emanuel Urquhart Sullivan said it was talking to a number of Credit Suisse AT 1 holders about possible legal action.