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Swiss regulator defends controversial write-down of $17 billion of Credit Suisse bonds




  • “The AT1 instruments issued by Credit Suisse contractually provide that they will be fully written down in a ‘viability event’, in particular if extraordinary government support is granted,” FINMA said in a statement on Thursday.
  • “As Credit Suisse received extraordinary liquidity assistance loans secured by a federal default guarantee on March 19, 2023, these contractual conditions were met for the AT1 instruments issued by the bank,”[ads1]; it added.

Axel Lehmann, Chairman of Credit Suisse Group AG, Colm Kelleher, Chairman of UBS Group AG, Karin Keller-Sutter, Swiss Minister of Finance, Alain Berset, President of Switzerland, Thomas Jordan, President of the Swiss National Bank (SNB), Marlene Amstad, Head of the Swiss Financial Market Supervisory Authority (FINMA), from left to right, during a press conference in Bern, Switzerland, Sunday, March 19, 2023.

Pascal Mora | Bloomberg | Getty Images

Swiss regulator FINMA on Thursday defended its decision to instruct Credit Suisse to write down its AT1 bonds – a controversial part of the lender’s emergency sale to UBS – saying it was a “viability event”.

The regulator said the loan Credit Suisse received from the Swiss National Bank last week, backed by the federal government, meant the conditions for a write-down were met.

The regulator instructed Credit Suisse to write down 16 billion Swiss francs of AT1 bonds, considered relatively risky investments, to zero, while shareholders will receive payments equal to the share’s takeover value.

This decision changed the usual European hierarchy for recovery in the event of bank failure under the post-financial crisis Basel III framework, which typically places AT1 bondholders above equity investors. Bondholders are investigating legal action over the disputed write-down.

“The AT1 instruments issued by Credit Suisse contractually provide that they will be fully written down in a ‘viability event’, in particular if extraordinary government support is granted,” FINMA said in a statement on Thursday.

“As Credit Suisse received extraordinary liquidity assistance loans secured by a federal default guarantee on March 19, 2023, these contractual conditions were satisfied for the AT1 instruments issued by the bank.”

After its share price plunged to a record low last week, Credit Suisse announced it had secured a loan of up to 50 billion Swiss francs from the Swiss National Bank, providing significant liquidity support to the lender as authorities struggled to put together a rescue deal on Sunday.

The Swiss federal government passed an emergency regulation to guarantee the additional liquidity assistance from the SNB to Credit Suisse, to ensure the successful implementation of the UBS takeover.

The regulation also empowered FINMA to “order the borrower and the financial group to write down additional capital,” the regulator said on Thursday.

“On Sunday, a solution could be found to protect clients, the financial center and the markets,” said FINMA chief Urban Angehrn.

“In this context, it is important that CS’s banking operations continue to function smoothly and without interruption. That is now the case.”



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