Credit Suisse Issues About $6 Billion in Contingent Bonds

Credit Suisse said on Monday that it had issued Qatar Holding and the
Olayan Group about six billion Swiss francs' worth of contingent
convertible bonds, a honestly untested debt instrument.

The debt residency with the Qatar sovereign wealth fund and the Saudi
conglomerate will take care of half of the contingent capital it has
to bring to somebody's attention under new Swiss rules meant to
strengthen bank weigh sheets in the consequence 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,

Contingent convertible bonds, known as CoCos, are like normal bonds
but except that they would be converted into equity by a trigger
consequence. In this case, the consequence would be a decline in the
bank's Tier 1 capital ratio to less than 7 percent.

Such bonds are intended to boost 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 conundrum of
too-huge-to-fail financial institutions.

Announcing the issue, Credit Suisse said the go 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 make sure
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.

Mr. 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

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 thought of bonds that lose half their worth when certain
capital threshholds are crossed," he said.