Risky Bank Debt Wipes Out Billions at Large ETF Issuers

Risky Bank Debt Wipes Out Billions at Large ETF Issuers

Pimco lost more than $300 million, according to reports.

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Reviewed by: Shubham Saharan
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Edited by: Shubham Saharan

The Credit Suisse fallout is spreading to large exchange-traded fund issuers as the wipeout of Additional Tier 1 bonds erase billions of dollars. 

Pacific Investment Management Co. and Invesco, who collectively manage almost $369 billion across their U.S.-listed ETFs, are among the largest holders of Credit Suisse’s risky bank debt, according to reporting by Bloomberg.  

Pimco holds about $3 billion of risky loans, while Invesco’s holdings amount to about $370 million, the report reads. Meanwhile, BlackRock, parent of the largest ETF issuer, iShares, held about $118 billion in the Swiss lender’s senior bank debt.  

According to Reuters, Pimco lost about $340 million in the wake of Credit Suisse’s downfall.  

UBS on Sunday said it would acquire rival Swiss bank Credit Suisse for around $3.2 billion after tumult in the U.S. banking industry led to the collapse of several banks before spreading to Europe and rattling that continent’s financial sector. The merger that was put together by the Swiss government is causing a wipeout of nearly $17.3 billion in Credit Suisse’s AT1 bonds.  

AT1 bonds, created in the aftermath of the great financial crisis, were put to market as a way for failing banks to absorb losses and decrease the likelihood of a bailout. They were a favorite investment among institutional investors seeking to leverage the bonds’ relatively higher yields, but posed risks in the event of a prospective downfall, as they could either be converted into equity or completely written down.  

“The investment teams overseeing these funds and accounts are monitoring the situation and are making decisions with the best interests of clients in mind,” a spokesperson for Invesco said to etf.com.  

Pimco representatives did not respond to request for comment.  

While U.S.-listed ETFs do not hold the risky debt, there are a handful of European listed funds that hold the assets. Among those are the WisdomTree AT1 CoCo Bond UCITS ETF (CCBO), which has dipped almost 14% in the last month.  

 

Contact Shubham Saharanat[email protected]       

Shubham Saharan is a markets reporter at etf.com. Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.