Axel Lehmann, Chairman of Credit Suisse Group AG, Colm Kelleher, Chairman of UBS Group AG, Karin Keller-Sutter, Minister of Finance of Switzerland, Alain Berset, President of Switzerland, Thomas Jordan, President of the Swiss National Bank (SNB), Marlene Amstad, Chairman of the Swiss Financial Market Supervisory Authority (FINMA), from left to right, at a press conference in Bern, Switzerland, on Sunday, March 19, 2023.
Pascal Mora | Bloomberg | Getty Images
Swiss regulator FINMA on Thursday defended his decision to instruct Credit Switzerland to write off 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 last week from the Swiss National Bank, backed by the federal government, meant conditions for a write-off had been met.
The regulator instructed Credit Suisse to write down 16 billion Swiss francs of AT1 bonds, widely regarded as relatively risky investments, to zero, while equity shareholders will receive payouts at the acquisition value of the share.
This decision upended the usual European hierarchy of restitution in the event of a bank failure under the post-financial crisis Basel III framework, which usually places AT1 bondholders above equity investors. Bondholders are investigating legal action over the controversial write-down.
“The AT1 instruments issued by Credit Suisse contractually stipulate that they will be fully amortized in a ‘viability event’, particularly if exceptional government assistance is granted,” FINMA said in a statement. rack Thursday.
“As Credit Suisse received extraordinary liquidity support loans on March 19, 2023 backed by a federal default guarantee, these contractual terms were met for the AT1 instruments issued by the bank.”
After the share price fell to an all-time low last week, Credit Suisse announced it had received a loan of up to CHF 50 billion from the Swiss National Bank, and provided substantial liquidity support to the lender as authorities rushed to finalize a rescue deal on Sunday.
The The Swiss Federal Government has issued an emergency ordinance to guarantee the additional liquidity support from the SNB to Credit Suisse, to ensure the successful execution of the UBS acquisition.
The regulation also authorized FINMA to “order the borrower and the financial group to write off additional Tier 1 capital,” the regulator said Thursday.
“A solution was found on Sunday to protect customers, the financial center and the markets,” said FINMA CEO Urban Angehrn.
“In this context, it is important that CS’s banking business continues to function smoothly and undisturbed. That is now also the case.”
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