As part of the deal to reanimate Credit Suisse, Swiss regulators cut a deal with UBS that included writing down the AT1 bonds to zero. Holders are not pleased.
In light of the “numerous inquiries,” Swiss regulator FINMA has issued a statement on wiping out the bonds.
The AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a “Viability Event,” in particular, if extraordinary government support is granted. As Credit Suisse was granted extraordinary liquidity assistance loans secured by a federal default guarantee on 19 March 2023, these contractual conditions were met for the AT1 instruments issued by the bank.
The same day, the Swiss Federal Council enacted an Emergency Ordinance that athorised FINMA to write down Tier 1 capital – the AT1 bonds.
Tier 2 bonds were not written down.
FINMA noted that AT1 instruments in Switzerland are designed in such a way that they are written down or converted into Common Equity Tier 1 capital before the equity capital of the bank concerned is completely used up or written down. The instruments publicly issued by large banks are mainly held by institutional investors due to their risk profile and large denominations.