As part of the deal arranged for UBS to buy Credit Suisse holders of CHF 16bn (circa US$17bn) of AT1 bonds have been wiped out.
- Additional Tier 1 debt will be written down to zero on the orders of the Swiss regulator FINMA.
- FINMA says the decision would support the bank's capital
Bank shares are under pressure as worries mount about exposure to this.
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AT1 bonds are a form of junior debt that counts towards banks' regulatory capital.
They were designed as a way to transfer risks to investors and away from taxpayers if a bank gets into trouble. This is a clear risk, outlined in the prospectus. (I know, who reads the T&Cs? Well, if you are a bond trader, or one of the lawyers at a global investment bank, you are paid a bazillion $$$ to do just that)
This has come to fruition, leaving holders of AT1 with scraps of paper worth nothing.
