: Swiss regulator says full writedown of Credit Suisse AT1 bonds due to ‘viability event’

Swiss regulator FINMA on Thursday defended the decision for Credit Suisse AG.’s CSCH:CSGN additional Tier 1 bonds (AT1), or contingent convertible bonds or CoCos, to be written down as part of the investment bank’s merger with UBS AG UBSCH:UBSG. “The AT1 instruments issued by Credit Suisse provide contractually that they are written off in full in the event of a trigger event (viability event), in particular when extraordinary government support is granted,” the regulator said in a statement. As the bank was granted assistance loans backed by a federal default guarantee on March 19, the regulator instructed the bank to write down the 16 biillion francs ($17.2 billion) worth of those bonds to zero, it said. “On Sunday, a solution was found to protect customers, the financial center and the markets. In this context, it is important that CS’s banking business continues to function smoothly and without interruption. That is now the case,” said FINMA Director Urban Angehrn. FINMA explained that AT1 instruments in Switzerland are designed to be written off or converted into Common Equity Tier 1 capital before the equity of the bank in question is completely used up or written off. Those instruments publicly issued by big banks are mostly held by institutional investors due to their risk and large denominations, it added. The news of the writedown delivered a shock to investors of the $275 billion AT1 bond market, triggering a sell-off of other European bank debt earlier this week. Also read, What are CoCos and why are Credit Suisse’s now worth zero?

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