"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.”
Youve missed the point. Big European banks Bonds are no longer rock solid collateral and will be questioned as to safe haven products. The Banks that are counterparty and do close business with UBS are now questioned heavily.
I haven't missed anything, I'm just quoting the article which answered the dismay. Apparently, these AT1 bonds were expressedly issued to be the fuse in the unlikely case of a bank's short circuit. It was written in the small prints.
This is just one of the differing interpretations and going before courts. The trigger is at the heart of the issue.
‘A financial banana republic’: UBS-Credit Suisse deal puts Switzerland’s reputation on the line https://www.cnbc.com/2023/03/21/ubs-credit-suisse-deal-puts-switzerlands-reputation-on-the-line.html
Credit Suisse: We almost crashed the global economy and had to be taken over, but our bankers still deserve their bonuses. Swiss government: Not so fast there, pal. Switzerland curbs bonus payouts at Credit Suisse https://www.reuters.com/business/fi...riable-remuneration-credit-suisse-2023-03-21/