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Credit Suisse secures $6b from Saudi Arabia, Qatar
Published in The Saudi Gazette on 15 - 02 - 2011

JEDDAH/ZURICH: Swiss banking giant Credit Suisse said Monday that it was raising $6.0 billion by issuing bonds to Saudi Arabia's Olayan Group and Qatar Holding to help it meet tough new capital adequacy rules.
The contingent convertible (CoCo) bonds are to be converted into cash no earlier than October 2013, or exchanged for Tier 1 capital notes issued in 2008, the bank said.
Qatar Holding will take bonds worth $3.5 billion and Olayan Group $2.5 billion.
Once the bonds are converted, the bank "will satisfy an estimated 50 percent of our high trigger contingent capital requirement" set by Swiss regulators.
"The completion of a transaction of this size supports our conviction that contingent capital can be a material source of capital for the banking industry," said Brady Dougan, chief executive officer of the bank. "We see this transaction as a significant development for Credit Suisse Group and our industry as we believe that it will put to rest concerns about the attractiveness of these instruments to investors," he added.
Since the global financial crisis, regulators have been drawing up tougher capital regulations for banks in order to avoid systemic bank failures.
CoCo bonds have been floated by the banking industry as possible instruments to help them raise capital to meet the new capital requirements.
The debt placement with the Qatar sovereign wealth fund and the Saudi conglomerate will take care of half of the contingent capital it has to raise under new Swiss rules meant to strengthen bank balance sheets in the event of crisis.
In an exchange for bonds the two investors already held, Credit Suisse is issuing bonds in two currencies - $3.5 billion and 2.5 billion Swiss francs; they pay a coupon of 9.5 percent and 9 percent, respectively.
CoCos are like normal bonds but except that they would be converted into equity by a trigger event. In this case, the event would be a decline in the bank's Tier 1 capital ratio to less than 7 percent.
Such bonds are intended to bolster a lender's equity in a crunch through the commitments of private sector investors, rather than have banks be saved with taxpayer money, as so many were in the recent crisis. By converting the bonds at a crucial moment, the lender would at once have less debt and more equity, alleviating the problem of too-big-to-fail financial institutions.
Announcing the issue, Credit Suisse said the move would partially satisfy "the proposed Swiss T.B.T.F. regime."
Brady W. Dougan, the bank's chief executive, said it had "worked in close cooperation with our primary regulator, Finma, to ensure that the buffer capital notes will qualify under the future Swiss capital rules as contingent capital."
The new capital requirements are set to take effect in 2019.
Credit Suisse lowered its outlook for the year last week and missed expectations for the fourth quarter.
Dougan added that the issue demonstrated CoCo bonds could be "a material source of capital for the banking industry" as well as an "attractive investment" for people already holding hybrid instruments.
Not everyone in Swiss banking is as positive about the bonds.
Oswald Gruebel, the head of Credit Suisse's major rival, UBS, said in an interview with the Swiss weekly Sonntag that he feared CoCos would prove dilutive to bank shares, and proposed an alternative. "I'm thinking of bonds that lose half their worth when certain capital threshholds are crossed," he said.


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