Font Size

- Aa +

Mon 14 Feb 2011 03:56 PM

Font Size

- Aa +

Credit Suisse raises $6.2bn from Qatar Holding, Olayan Group

Move aims at meeting strict Swiss capital rules geared towards avoiding state-funded bailouts

Credit Suisse raises $6.2bn from Qatar Holding, Olayan Group
BONDS ISSUE Switzerlands two biggest banks UBS and Credit Suisse will issue CoCos, which convert into equity under certain conditions (Getty Images)

Swiss bank Credit Suisse has said it is to raise 6bn Swiss
francs ($6.2bn) from Middle Eastern investors in a move towards meeting strict Swiss
capital rules.

The bank said Monday it will issue convertible bonds, known
as CoCos, to Qatar Holding and The Olayan Group, to be paid up on earlier than
October 2013.

Under new rules, Switzerland’s biggest lenders UBS and
Credit Suisse will have to issue CoCos, which covert into equity under certain
conditions, such if a bank’s capital ratio falls below a certain point.

CoCos are seen as a way to avoid government-funded bailouts
and to force investors to share in the pain should a bank get into trouble in
the future.

However, some banks have expressed doubts over whether
investors will be interested in such a financial instrument.

"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," Credit Suisse chief executive Brady Dougan said.

"We believe that it will put to rest concerns about the
attractiveness of these instruments to investors," he said.

The CoCos will be issued in exchange for hybrid capital with
higher coupons issued in 2008 currently held by the two investors, Credit Suisse
said.

Ratings agency S&P has said banks globally may need to
raise as much as $1 trillion of CoCo-style capital in the next 5-10 years,
making a strong investor base essential.

Britain's Lloyd's Banking Group and Dutch lender Rabobank
have already issued types of CoCos.

*With agencies

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.