Who is above?
European regulators said Monday they will continue to impose losses on shareholders rather than bond investors, unlike the treatment of Credit Suisse’s creditors.
Separately, the Bank of England also stated that Britain has a clear statutory order in which shareholders and creditors of failed banks bear losses, with AT1 taking precedence over other equity instruments, but after the second category bonds at the time of distribution.
It is not the first time that the treatment of AT1 bonds in a bank review has caused controversy. A dispute over the cancellation of around $1 billion of AT1 bonds issued by Yes Bank of India in March 2020, after the Reserve Bank of India began a restructuring of the lender, is currently subject to proceedings. judicial.
What does it mean for investors?
The Swiss regulator’s decision to force Credit Suisse to zero out its AT1 debt surprised fixed-income investors, but if they had read the fine print in the bond’s prospectus, they would not have been.
A bank adviser and a bond investor said the Swiss government’s moves were legal as AT1 type bonds issued by Credit Suisse could become worthless.
But the price of AT1 bonds from other banks has fallen as investors panicked that their bonds, which were supposed to offer more protection than stocks, could suffer the same fate.
And for the market in general?
The decision to zero Credit Suisse’s AT1 bonds is seen as negative for the global AT1 bond market.
Analysts believe that investors will be much more cautious about buying AT1 bonds in the future, making it more difficult for banks that need to raise funds in the bond markets to meet regulatory requirements.
Offer prices for AT1 bonds from banks including Deutsche Bank, HSBC, UBS and BNP Paribas fell between 9 and 12 basis points on Monday, sending yields soaring, according to Tradeweb data.
European banking supervisors intervene to stem the fall in bonds