Hedge fund boss Jeffrey Gundlach said outraged Credit Suisse creditors facing a $17 billion wipeout in rival UBS Group’s rescue deal should “look in the mirror” and put on their “big boy pants” instead of griping about regulators.
Gundlach, the CEO of DoubleLine Capital, had little sympathy for bondholders following revelations that Credit Suisse’s additional tier 1 bonds would be subject to a “complete write-down” in the UBS deal – meaning their investments were worthless.
“Bloomberg reports the gunslingers who foolishly kept holding Credit Suisse’s bail-in bonds are angry they are being wiped out,” Gundlach tweeted.
“Seriously? Put on your big boy pants and look in the mirror. That’s where the ‘blame’ lies. Learn how to manage risk!” he added.
Gundlach went on to suggest some debt managers had simply failed to properly assess the situation.
“Members of my investment team met with a very significant asset allocator last Wednesday, who reported that ALL of their ‘distressed debt’ managers opined that Credit Suisse’s bonds were ‘money good’, meaning would return par,” Gundlach said. “Only off by 100 points. To quote Rick Perry: ‘Oops.’”
The $17 billion writedown prompted outrage from the impacted Credit Suisse bondholders who questioned how the government-brokered UBS takeover was allowed to proceed under such terms.
Credit Suisse shareholders will receive 3 billion francs as part of the takeover deal.
In most situations, shareholders take losses before bondholders – a factor that has contributed to the outrage and led to accusations that Swiss regulators ignored well-established precedent while overseeing the arrangement. Bond giant Pimco was among the firms impacted by the deal, losing roughly $340 million on it AT1 bond holdings, according to Reuters.
“In my eyes, this is against the law,” Patrik Kauffman, a fund manager at Aquila Asset Management, a firm that invests in AT1 bonds, told the Financial Times.
“We’ve never seen this before. I don’t think this would be allowed to happen again,” Kauffman added.
AT1 bonds carry a high yield but are considered risky investments because they can be turned into equity – or wiped out entirely – if a lender is at risk of collapse. They were first introduced as a hedge following the upheaval of the Great Recession in 2008.
Jérôme Legras, head of research at Axiom Alternative Investments, which holds Credit Suisse AT1 bonds, told the FT that the decision marked a “reversal of the usual hierarchy.”