The $17 billion wipeout of Credit Suisse bondholders has not gone down well in Europe

https://www.cnbc.com/2023/03/20/17-billion-of-credit-suisse-bonds-worthless-following-ubs-takeover.html

One section of Credit Suisse’s bondholders is set to be wiped out following the struggling bank’s takeover by UBS, causing them to see investments worth 16 billion Swiss francs ($17 billion) become worthless. The Swiss regulator FINMA announced Sunday that the so-called additional tier-one bonds, which are widely considered relatively risky investments, will be written to zero as part of the deal. The move has angered Credit Suisse AT1 bondholders as their investments have seemingly been lost, while shareholders will receive payouts as part of the takeover. Usually, equity investments would be classed as secondary to AT1 bonds. Therefore, the decision “can be interpreted as an effective subordination of AT1 bondholders to shareholders,” Goldman Sachs’ credit strategists said in a research note published Sunday.

“It also represents the largest loss ever inflicted to AT1 investors since the birth of the asset class post-global financial crisis,” they added. However, FINMA’s move should not come as a shock, Elisabeth Rudman, global head of financial institutions at DBRS Morningstar, told CNBC’s “Squawk Box Europe” on Monday. “AT1s are there to absorb losses, so it’s not a surprise,” she said. “They’ve done what they were supposed to do.”

Vítor Constâncio, who was the vice president of the ECB from 2010 to 2018, commented on FINMA’s announcement on Twitter, saying it was a “a mistake with consequences” that could lead to legal action. The Bank of England has also distanced itself from FINMA’s decision, stating that the U.K. “has a clear statutory order” detailing which shareholders and creditors were expected to take on losses. AT1 bonds “rank ahead” of equity investments, the statement noted, adding that they had followed this process in the unwinding of SVB UK.