Swiss regulator defends $17bn wipeout of AT1 bonds in Credit Suisse deal

Swiss financial regulator Finma has defended its decision to wipe out the value of risky additional tier 1 bonds as part of the Credit Suisse rescue deal.

The move enraged some bondholders because Credit Suisse shareholders will receive a payout.

In a statement on Thursday, Finma said the AT1s “contractually provide that they will be completely written down in a ‘viability event’, in particular if extraordinary government support is granted”, and noted that the bank received emergency loans backed by a government guarantee on March 19.

“On Sunday, a solution was found to protect clients, the financial centre and the markets,” said Finma’s chief executive Urban Angehrn. “In this context, it is important that Credit Suisse’s banking business continues to function smoothly and without interruption.”

US distressed debt investors and corporate litigators are preparing to fight the Swiss government over its decision to write down $17bn of Credit Suisse bonds as part of the bank’s takeover by UBS.

Switzerland used an emergency ordinance to write down the bonds to zero, even as it orchestrated a deal where UBS will pay $3.25bn to shareholders.

AT1s are a class of debt designed to take losses when institutions run into trouble but are generally believed to rank ahead of equity on the balance sheet.

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