Credit Suisse’s AT1 Bonds Does Not Pose Risk To Malaysian Market, SC States

The Securities Commission Malaysia (SC) said that based on its assessment, the overall exposure to Credit Suisse’s AT1 bonds in the Malaysian fund management industry is not substantial and is contained.

“We do not see this development relating to the AT1 bonds posing any systemic risk to the Malaysian market,” the regulator said in a response to The Edge’s queries  on the matter.

“In terms of portfolio exposure to Credit Suisse’s AT1 bonds, there are two wholesale funds managed by AHAM Capital Asset Management that has single and direct exposure to [Credit Suisse’s] AT1 bonds via the AHAM Single Bond Series 2 and the AHAM Single Bond Series 4,” said the SC.

AHAM, the regulator noted, has said that its exposure amounts to less than 0.1% of the firm’s total assets under management, which stood at RM77 billion as of Feb 28.

In reply to a query from The Edge on the possible ripple effects of Credit Suisse’s CoCo (contingent convertible) bonds, the SC said that it will continue to closely monitor the situation from a global and local level.

AHAM announced in a statement on March 20 that it had suspended dealings in the two bond funds, adding: “All of our other bond funds managed by AHAM have negligible or zero exposure to Credit Suisse AT1s and as such, any further impact is minimal.”

Both the AHAM Single Bond Series 2 and 4 invested in the Credit Suisse Additional Tier 1 (CS AT1) bonds. The Series 2 fund has the CS 6.375% AT1 as its underlying bond, while the Series 4 fund has the CS 5.25% AT1 as its underlying bond.

Asked for its comment on the AHAM’s move to suspend dealings in the two bond funds, the SC said: “In general, a fund manager is accorded the ability to suspend its funds as part of its management of risks, based on clearly defined circumstances such as permanently write-down, partially or in full, the principal amount of the bond by the issuer.

“The suspension of the two funds was conducted in accordance with the terms and conditions of the funds as stated in the disclosure documents, to ensure the protection of investors, including potential new investors into the funds,” said the SC.

The suspension came after the Swiss Financial Market Supervisory Authority (Finma) announced that UBS Group was taking over Credit Suisse. In the process, Credit Suisse’s US$17 billion AT1 bonds will be written off, while its shareholders will receive US$3.2 billion.

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