Credit Suisse to buy back hybrid debt, meeting new rules

Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, offered to repurchase 4 billion Swiss francs ($4.4 billion) in outstanding tier 1 and tier 2 securities as it prepares to replace them with capital instruments that satisfy new Swiss and Basel III rules.

“This is another important step for Credit Suisse and its investors in transitioning to the new regulatory regime,” Chief Financial Officer David Mathers said in an e-mailed statement today. Credit Suisse plans to change “its capital structure well in advance of the required implementation dates,” he said.

Credit Suisse is selling contingent capital bonds to replace so-called hybrid debt, which will no longer count as the highest-quality capital under rules approved by the Basel Committee on Banking Supervision in 2010. The bank today and tomorrow is meeting investors before a possible sale of contingent capital notes, a banker with knowledge of the plans, who declined to be identified because the information is private, said last week. Credit Suisse agreed in February of last year to sell $3.5 billion and 2.5 billion francs of contingent convertible bonds, known as CoCos, to existing shareholders in Qatar and Saudi Arabia in exchange for tier 1 capital notes sold in 2008. The bonds, which would convert into shares if the bank’s Basel III common-equity ratio falls below 7 percent, will be issued no earlier than October 2013. The bank also sold $2 billion of CoCos to public investors.

Under current rules, banks can count hybrid debt — perpetual securities that can only be redeemed with regulatory approval — as tier 1 capital. Rule-makers decided in 2010 to phase out most hybrid debt as capital starting in 2013 because it failed to provide a buffer for losses in the financial meltdown. Credit Suisse’s tier 1 capital at the end of 2011 included 10.9 billion francs, or 30 percent, in hybrid debt under the so-called Basel 2.5 rules.

Credit Suisse’s repurchase offer is for 10 bonds with different acceptance priority levels. Securities can be tendered until 11:59 p.m. New York time on March 30, while bonds tendered at or before 5 p.m. New York time on March 16 will be eligible for an additional early tender payment, the bank said.