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Banking, finance, and taxes

Credit Suisse Responds to Criticism, Downgrade with CoCos (CS, UBS)

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By Paul Ausick Published
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A Swiss newspaper reported over the weekend that Swiss-based Credit Suisse Group AG (NYSE: CS) may bring forward a planned issue of $6.26 billion in contingent convertible bonds — called CoCos — from October 2013 in a move that would raise the bank’s capital reserve to 8%. Credit Suisse and UBS AG (NYSE: UBS) were the subjects of a report in mid-June by the Swiss National Bank (SNB) that urged the banks to build up the “loss-absorbing capital” reserves.

Credit Suisse also suffered a ratings downgrade last week, along with more than a dozen other big banks.

The SNB has encouraged the banks to issue CoCos, but an international finance body has ruled that the convertible debt does not meet stricter new capital reserves requirements. In addition to a conversion price, a CoCo has a second, and higher, price that a company’s stock must meet before the bondholder may exercise the conversion right. Thus if the conversion price is $5/share, the trigger price may be $10/share, which means that the bondholder can exercise the conversion right only after the share price reaches $10/share.

Credit Suisse’s CoCo bonds were scheduled to be acquired by the sovereign wealth fund of Qatar and a Saudi investment firm. Reuters reports that both would have to agree to the scheduling change.

Paul Ausick

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About the Author Paul Ausick →

Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.

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