Investors are questioning the future of the $260bn market for additional tier 1 bank debt, following a decision by Swiss regulators to write down Credit Suisse’s AT1 bonds in its rescue takeover by UBS.
Last month, Swiss financial regulator Finma angered Credit Suisse bondholders by wiping out $17bn worth of the ailing bank’s AT1 debt, as part of the emergency UBS acquisition deal.
AT1 bonds are a class of debt introduced after the global financial crisis and designed to take losses when institutions run into trouble — but they are generally deemed to rank ahead of equity on a bank’s balance sheet. In the Credit Suisse rescue, however, the value of its AT1s was written down from $17bn to zero, while equity holders were allowed to receive $3.25bn.