Swiss authorities mull imposing losses on Credit Suisse bondholders -sources

Mar 19, 2023 | blog

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FRANKFURT/LONDON — Swiss authorities are analyzing imposing losses on Credit Suisse bondholders as a part of a rescue of the financial institution, two sources with data of the matter stated on Sunday.

However, European regulators are apprehensive about such a transfer for concern that it might hit investor confidence elsewhere in Europe’s monetary sector, the sources stated, talking on the situation of anonymity.

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A remaining choice, nevertheless, had not been taken and the phrases might nonetheless change, in line with the sources.

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Losses on bondholders might should be bigger if Credit Suisse have been wound down fairly than if it have been taken over by UBS, one of many sources stated. Authorities try to engineer a UBS takeover of Credit Suisse earlier than monetary markets reopen on Monday.

FINMA, the Swiss regulator, didn’t instantly reply to a request for remark. Credit Suisse and UBS declined to remark.

Despite the prospect of losses, some bond traders on Sunday have been inspired by a report within the Financial Times that UBS had supplied as much as $1 billion to purchase its rival, though there isn’t a assure a take care of UBS can be reached.

The worth of one among Credit Suisse’s Additional Tier 1 (AT1) bonds, a junior tranche of debt which slumped in worth this week, rallied in restricted buying and selling after the report, one investor stated.

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A $1 billion deal would imply Credit Suisse shareholders getting a fraction of what their shares have been value on Friday.

But with bonds sitting above fairness within the precedence ladder for compensation in a chapter course of, two traders stated it will be unlikely bondholders would take a success if shareholders get one thing.

“I would be surprised if Credit Suisse bondholders, including AT1 investors, weren’t made whole. As long as UBS pays something to equity investors, bondholders should be left untouched,” Jerome Legras, head of analysis at Axiom Alternative Investments, an investor in Credit Suisse’s AT1 debt, instructed Reuters.

AT1 bonds are designed to show into fairness if a financial institution’s capital is depleted to assist prop up the financial institution.

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Another holder of the debt stated they anticipated the AT1 bonds might be transformed into UBS shares if a deal went via.

Credit Suisse bonds plunged into distressed territory at or beneath 30 cents on the greenback this week as traders nervous concerning the well being of the financial institution even after the Swiss National Bank offered the lender with a $54 billion emergency mortgage.

Protecting bondholders from losses would enhance confidence throughout the monetary business, however a take care of UBS is only one potential end result. If the takeover falls aside, Switzerland is contemplating taking on the financial institution in full or holding a major fairness stake, Bloomberg reported. (Reporting by John O’Donnell and Chiara Elisei; Additional reporting by Elisa Martinuzzi and Pablo Mayo Cerqueiro; Writing by Tommy Reggiori Wilkes; Editing by Paritosh Bansal and Hugh Lawson)


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