Swiss regulators defend $17bn Credit Suisse bondholder wipeout

Swiss finance regulators have moved to defend their decision to wipe out investors holding $17 billion (€15.64 billion) of Credit Suisse bonds as part of its takeover by UBS.

Finma, the Swiss financial market supervisory authority, has been criticised for its decision to let AT1 bondholders suffer losses while equity holders, who are lower down the capital structure, were protected and paid $3.25 billion as part of the deal.

The body said that AT1 instruments issued by Credit Suisse contained a stipulation that they would be “completely written down” in a so-called ‘viability event’, in particular, if government support is required.

“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,” it said.

Furthermore, it added that the order that allowed assistance from the Swiss National Bank to be given to Credit Suisse also authorised Finma to order the borrower to write down Additional Tier 1 capital.

“On Sunday (19 March), a solution could be found to protect clients, the financial centre and the markets,” Urban Angehrn, Finma chief executive, said.

“In this context, it is important that Credit Suisse’s banking business continues to function smoothly and without interruption. That is now the case.”

US investors are among those preparing to fight the Swiss government in the courts over its decision, according to reports in the Financial Times.

While the quick pace of Finma’s actions has been supported by its European supervisory peers, the EU did reaffirm that regulations about which order investors would suffer losses in amid rescue situations remained in place and would be followed.

However, Finma said in its latest statement that AT1 instruments in Switzerland are designed in such a way that they are written down, or converted to Common Equity Tier 1 capital, before the equity capital of the bank concerned is completely used up or written down.

© 2023 funds europe

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