https://fortune.com/2023/03/19/credit-suisse-risky-bonds-now-worthless-after-takeover-by-ubs/ Credit Suisse’s $17B of risky bonds now worthless after takeover by UBS: ‘Those bonds were created for moments like this’ The deal will trigger a “complete write-down” of the bank’s additional tier 1 bonds in order to increase core capital, said Swiss regulators. BY TASOS VOSSOS , COLIN KEATINGE , AND BLOOMBERG March 19, 2023 4:05 PM EDT Holders of Credit Suisse Group AG bonds suffered a historic loss when a takeover by UBS Group AG wiped out about 16 billion Swiss francs ($17.3 billion) worth of risky notes. The deal will trigger a “complete write-down” of the bank’s additional tier 1 bonds in order to increase core capital, Swiss financial regulator FINMA said in a statement on its website. Meanwhile, the bank’s shareholders are set to receive 3 billion francs. The bond wipe out is the biggest loss yet for Europe’s $275 billion AT1 market, far eclipsing the only other write-down to date of this type of security: a €1.35 billion ($1.44 billion) loss suffered by junior bondholders of Spanish lender Banco Popular SA back in 2017, when it was absorbed by Banco Santander SA for one euro to avoid a collapse. In that instance, the equity was also written off. In a typical writedown scenario, shareholders are the first to take a hit before AT1 bonds face losses, as Credit Suisse also guided in a presentation to investors earlier this week. That’s why the decision to write down the bank’s riskiest debt — rather than its shareholders — provoked a furious response from some of Credit Suisse’s AT1 bondholders. “This just makes no sense,” said Patrik Kauffmann, a portfolio manager at Aquila Asset Management AG. “This will be a total blow to the AT1 market. You can quote me on that.” Kauffmann believes that money should have gone to AT1 holders instead, leaving nothing for shareholders, as “seniority in the capital structure need to be respected.” AT1 bondholders Pacific Investment Management Co., Invesco Ltd. and BlueBay Funds Management Co. SA were among the many asset managers holding Credit Suisse AT1 notes, according to data compiled by Bloomberg. Their holdings may have changed or been sold entirely since their last regulatory filings. Pimco and BlueBay declined to comment when contacted by Bloomberg News on Friday, before the deal was announced. A spokeswoman for Invesco said that its investment teams are continuing to monitor developments. AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail. They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business. Prices on those bonds fluctuated wildly as traders gathered for a rare weekend session on Sunday to weigh two scenarios: either the regulator would nationalize part or the whole bank, possibly writing off Credit Suisse’s AT1 bonds entirely, or a UBS buyout with potentially no losses for bondholders. Prices oscillated between 20 cents on the dollar to as high as 70 cents when the deal was finalized. Following the FINMA announcement, some trading desks simply updated their clients that a write-down had occurred. The broader market for those risky European bank bonds, also known as contingent convertibles or CoCos, has also tumbled in the past two weeks, with the average AT1 indicated at a price of about 80% of face value on Friday, one of the steepest discounts on record. Hand grenades For some investors, the fact the UBS deal rendered the notes worthless came as no surprise, given their well-known downsides. Holders of AT1s knew they were buying high-yield risk with a hand grenade attached to it, according to John McClain, portfolio manager at Brandywine Global Investment Management. “It’s absolutely the right thing to do to prevent moral hazard from creeping into that part of the market,” he said. “Those bonds were created for moments like this. Similar to catastrophe bonds.”
That is very bad news for investors who HODL based on hope, and who have no hard stop. But very good news for the traders. Those investors probably haven't slept for a week already. Day traders can sleep well every day.
If I told you January 1, 2023 that by March 20 the second and third biggest bank failures in the US had happened and that Credit Suisse had ceased to exist and had been taken over by UBS, interest rate kept climbing, inflation was still high, would you believe SPY would have yielded a positive return? Crazy.
How Swiss banking went from a Rolls-Royce to a toxic mess https://www.msn.com/en-gb/money/oth...rom-a-rolls-royce-to-a-toxic-mess/ar-AA18O634
This is a first that AT1 gets wiped out while equity holders go home with money in their pockets. Surely this will be contested in court, almost 100% certain of that. The trigger of this wipeout is based on questionable interpretations at best. Unbelievable that equity markets trade at the 4000 mark while bondholders get wiped out, interest rates at nearly 5%, untamed inflation, crime waves in every major city, a lost young woke generation. We have to thank corrupt and nepotistic politicians for that.
Who would have thought the champions of "Democracy" and supposed "neutral" country would violate all their tenets of existence to pull off this nonsense. Single-handedly destroyed the CoCo market as well. Is there any value in "owning" stock in Switzerland anymore?
All neutral means is that Switzerland will support Nazi's and anti-Nazi's. You are asking the wrong question: is there any reason to owning a bank anymore. CS problems were well understood for a decade. The stock was 8.xx last year.
%% YES, because 88% of the time JAN = UP, SPY finishes up for year. 1987 + 2009 were exceptions to JAN up /fore caster[Stock Traders Almanac rule] YES, because Ray D Of Bridgewater told Jack schawger, he was surprised as a young trader/ when the Fed helped during he big Mexico crises. And the market went up. Looks like SPY is run by better than SVB management + CS \penny stock management . Not a prediction