- The bank has been marketing small blocks of illiquid loans
- Asset managers expressed interest in buying its entire holding
Credit Suisse Group AG has begun selling $1.9 billion of distressed-debt holdings that triggered losses at the end of last year, as part of an overhaul by Chief Executive Officer Tidjane Thiam, people with knowledge of the matter said.
The Zurich-based lender has been marketing small blocks of its hard-to-sell loans to hedge funds and money managers who purchase distressed debt, said the people, asking not to be identified because the information isn’t public. The bank has also been contacted by asset managers interested in buying its entire distressed-debt book, but none of the offers were considered viable, two of the people said.
In at least one instance, Credit Suisse’s New York-based credit-trading group attempted to sell loans in a health-care company in blocks of $10 million to $15 million each, one of the people said. Most other offers have been smaller as the bank tries to avoid disrupting debt prices, the people said.
Thiam, who took the top job at Credit Suisse last year, is pulling out of some trading businesses, reducing risk and cutting assets as he seeks to meet tougher capital demands from regulators. The lender lost $209 million on its holdings of distressed debt in the last three months of 2015, contributing to an overall quarterly loss for the bank.
Distressed debt, part of a business Thiam last year described as an “ugly duckling,” doesn’t belong in the strategy the lender wants to pursue, he said. The bank hasn’t announced a deadline for winding down its distressed debt positions.
Drew Benson, a spokesman for Credit Suisse, declined to comment.
Almost 10 percent of the bank’s holdings were in the debt of energy and metals and mining companies, Chief Financial Officer David Mathers said on a Feb. 4 call with investors and analysts. That debt led a 25 percent loss in distressed bonds in the fourth quarter amid a sustained rout in commodities prices, according to Bank of America Merrill Lynch index data.
The mark-to-market losses fueled a 63 percent drop in fixed-income trading revenue to $297 million in the fourth quarter at the bank. That compares with declines of 16 percent for Deutsche Bank AG and 3 percent for JPMorgan Chase & Co., according to data compiled by Bloomberg.
Wall Street banks including Jefferies Group and Goldman Sachs Group Inc. have been hurt over the past year by distressed debt, particularly in the energy sector, as the oil market suffers its worst downturn in three decades. Sales of credit products, including distressed debt and bonds in emerging markets, slumped 32 percent to $12.4 billion last year, about half of what banks generated from the assets in 2010, according to research firm Coalition Development Ltd.