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Abu Dhabi, UAETuesday 11 December 2018

Qatar sovereign wealth fund trims Credit Suisse stake

Investment authority didn't participate in bank's recent capital increase

The Qatar Investment Authority did not participate in Credit Suisse's recent capital increase. Steffen Schmidt / AP Photo
The Qatar Investment Authority did not participate in Credit Suisse's recent capital increase. Steffen Schmidt / AP Photo

The Qatar Investment Authority has reduced its shareholding in Credit Suisse Group to 4.94 percent, amid the Middle Eastern nation’s diplomatic crisis with neighbouring countries.

The country’s sovereign wealth fund, known as QIA, previously held 5.01 percent in voting rights, according to a Swiss stock market filing. Qatar’s overall holding in Credit Suisse -- made up of so-called contingent convertible bonds (CoCos) which convert into equity if the bank’s tier 1 capital falls below a certain threshold -- fell to 15.91 percent from 17.98 percent, after the bank’s recent capital increase.

Credit Suisse, halfway through a three-year strategy revamp, raised about 4.1 billion francs (US$4.21 billion) in June after tapping shareholders for a second time since chief executive Tidjane Thiam took over in 2015. The fresh funding will increase its common equity Tier 1 capital to 13.4 percent of risk-weighted assets, up from 11.7 percent at the end of the first quarter.

The Qataris haven’t sold any of the convertible bonds - which convert into equity once the bank’s look-through common equity tier 1 capital ratio falls below seven percent - according to a person familiar with the matter. CoCos held by the Qataris hold pay an annual coupon between 9 percent and 9.5 percent. Credit Suisse announced the issuance of CoCos in 2011 to comply with Swiss “Too big to fail” rules.

Regulators conceived CoCos after the 2008 financial crisis as a way of helping banks bolster capital ratios by tapping debt investors. Also known as additional Tier 1 bonds, CoCos must have no stated maturity and have to convert into equity automatically or be written down to absorb losses if the issuer’s capital ratios drop below a threshold. On top of this, interest payments are optional, the feature that’s caused the most confusion among investors.

QIA and Credit Suisse declined to comment. Credit Suisse shares rose as much as 0.9 percent in Zurich trading.

In February Credit Suisse said that Bin Hamad J.J. Al Thani, who represented the Qataris at Credit Suisse’s board of directors, won’t stand for re-election. Saudi Arabian group Olayan is also a major shareholder in Credit Suisse.

Qatar boasts one of the world’s largest sovereign wealth funds, with stakes in companies from Glencore to Barclays. The small peninsular nation also hosts the regional headquarters for US Central Command, which includes a state-of-the-art air base the Pentagon depends on to target Islamic State.

Saudi Arabia, the United Arab Emirates, Bahrain and Egypt severed diplomatic and transport links with Qatar on June 5, accusing the sheikhdom of supporting Sunni extremist groups and Iranian-backed militants.

The dispute pits US allies against each other in a struggle over political dominance in a region that controls about a fifth of global oil supplies.