The European supervisors tried to stop the collapse of the market for convertible bank bonds on Monday, saying that the owners of this type of debt would only suffer losses after the shareholders had been liquidated, unlike what happened in Credit Suisse.
The regulators of the European Union and the United Kingdom reacted to the decision of the Swiss authorities not to pay the additional level 1 bonuses (AT1) of Credit Suisse, despite the fact that shareholders received UBS shares.
EU regulators — the European Central Bank, the European Banking Authority and the Single Resolution Board (SRB) — said they would continue to impose losses on shareholders rather than bondholders.
“This approach has been applied systematically in previous cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions,” they said in a statement.
The comments helped bank bond prices pare losses and the bank of england echoed them soon after.
“Holders of such instruments should expect to be exposed to loss in the event of resolution or insolvency in the order of their positions in this hierarchy,” the Bank of England said in its statement.
However, all the institutions welcomed “the comprehensive set of measures taken by the Swiss authorities” to save Credit Suisse, using the same phrase in their separate statements.
In a package designed by Swiss regulators, UBS Group AG will pay 3 billion Swiss francs (3.2 billion dollars) for Credit Suisse Group AG167 years old, and will assume up to $5.4 billion in losses.
Under the deal, the Swiss regulator decided that Credit Suisse’s additional Tier 1 bonds, or AT1 bonds, with a notional value of $17 billion, will be valued at zero, angering some holders of the deal. debt, which they thought would be better protected than shareholders in the takeover operation announced on Sunday.
He AT1 It became popular with banks and market participants in the past decade as lenders sought ways to raise capital to meet supervisory requirements without issuing shares.
“Additional Tier 1 is and will continue to be an important component of the capital structure of European banks,” the EU regulators state in their joint statement.
Credit Suisse’s AT1 bonds contained a clause that allowed the Swiss authorities not to pay them if the bank failed, regardless of what happened to the shares.
This clause is not usually included in EU bonds, according to analysts.
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