ZURICH, Aug 28 (Reuters) - Credit Suisse is to redeem three bonds on which it paid interest of approximately 550 million Swiss francs ($552 million) a year, helping the bank to cut funding costs by nearly 900 million francs over the next two years.
The Swiss bank sold roughly 5.9 billion Swiss francs in CoCos, short for contingent convertible bonds, to the Qatar Investment Authority (QIA) and Saudi Arabian conglomerate Olayan Group in 2012 and 2013.
The bonds, which convert into equity if the bank's core capital ratio dips below a certain level, were issued in an effort to meet tougher Swiss capital rules. Credit Suisse paid 9 to 9.5 percent interest annually on the bonds.
"This is a key step forward in reducing Credit Suisse's funding costs, as we continue to reshape our balance sheet and optimise our capital structure," a spokesman said on Tuesday. "It is another milestone in the bank's three-year restructuring programme, which is due to be completed at the end of 2018."
Switzerland's second-biggest bank said it would redeem the bonds on Oct. 23, the earliest possible date.
Credit Suisse had flagged at its last investor day in November savings of roughly 200 million Swiss francs this year and 700 million next year by redeeming the bonds and other legacy capital instruments.
The bank in July issued a $2 billion bond as part of its refinancing plan and in August priced another 300 million franc bond, which is expected to settle on Sept. 4.
The bank will save considerably on interest payments for these placements, with the $2 billion bond priced at a 7.5 percent interest rate, while the 300 million franc bond has been priced at 3.5 percent, according to Thomson Reuters IFR data.
$1 = 0.9957 Swiss francs Reporting by Brenna Hughes Neghaiwi. Editing by Jane Merriman