The surprise forced wipeout of Credit Suisse's mandatory convertible bonds shocked investors worldwide. But Carmignac, the well-known French asset manager, is unfazed.

The decision by the Swiss Financial Market Supervisory Authority (Finma) to trigger mandatory convertible bonds worth the equivalent of 15.8 billion Swiss francs ($17 billion) to rescue Credit Suisse has sent shockwaves through the global financial system. This was the first time since the 2008 financial crisis that a «trigger event» occurred for so-called AT1 bonds issued by a major global systemically important bank.

Don't Rule Out AT1

Edouard Carmignac, head of the eponymous French fund manager, is not put off by this. As bond specialist Alexandre Deneuville told Swiss financial portal «Allnews» (in French) the funds of the «Sun King» Carmignac are still invested in AT1 bonds.

«One should not exclude AT1 in general,» Deneuville said. If securities can generate a credit margin in the range of 500 to 600 basis points compared to annualized risk costs estimated at 200 basis points, the additional yield remains attractive, he said. «This is why we have invested in AT1 and will continue to do so, but broadly diversified and avoiding the most vulnerable banking institutions,» the bond specialist said.

Lands With Private Investors

Meanwhile, others with AT1 bonds from Credit Suisse have gotten burned, sometimes badly. Among the most affected investors are funds of the Swiss asset manager GAM. Small denominations of Credit Suisse's AT1 securities are also said to have ended up with private investors.

In connection with the losses, an American law firm is already preparing a lawsuit against Finma, as finews.com reported. The Swiss regulator defended its decision to write down the bonds, saying they could be written down in a «viability event.» At the same time, it obtained an emergency ordinance from the federal government to write them down. With those two conditions met, Finma instructed Credit Suisse to write down the bonds.

The authority said it will look into possible lawsuits as they are received.