Credit Suisse is set to pay nearly double-digit interest rates for its latest bond offering as investors demand high compensation from the crisis-ridden bank.
The Swiss lender is due to pay 9.75 per cent in interest on its new debt that is being sold late on Thursday, according to people familiar with the matter.
The bank will raise at least $1.5bn and its bond offering comes amid a sell-off in financial markets as major central banks raise interest rates in an effort to tame spiralling inflation.
“It’s the first time in ages that we’ve seen a coupon that’s almost double digits,” said a bond investor. “We’d forgotten what double digit looks like but this one is really near.”
Credit Suisse has lurched 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 shut $10bn of funds linked to the stricken group and weeks later it suffered a record $5.5bn trading loss following the collapse of Bill Hwang’s family office Archegos.
Last month the UK’s financial regulator put the bank on a watchlist of groups needing stricter supervision.
The problems have hit Credit Suisse’s share price and contributed to three profit warnings. Credit rating agencies Fitch and S&P both downgraded the bank last month.
Credit Suisse is raising the funds via new additional tier 1 (AT1) bonds. AT1 bonds are sometimes called “contingent convertibles” or cocos because they can be converted into equity in times of stress. In 2011, the Zurich-based bank became the first to issue such debt and Thursday’s offering is set to replace the last of those bonds, which pay 7.125 per cent interest and are callable next month.
“They decided they wanted to redeem even if it was a bit more expensive . . . With all the negative news flow and anger they might have got from investors, they want to show they are an investor-friendly bank,” the investor added. Credit Suisse’s new AT1 bonds will not convert to equity if the bank’s capital ratio falls below regulatory standards but instead be written down.
Private Swiss bank Julius Baer and Sweden’s SEB have both raised dollar-denominated AT1 debt in recent weeks at interest rates of 6.875 per cent, well below that of Credit Suisse.
