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Credit Suisse bailout crosses a debt Rubicon

By Marcus Ashworth

20 Mar 2023 · 3 min read

Editor's Note

The decision to wipe out $17 billion in Credit Suisse's riskiest debt will make it harder for European banks to raise capital, creating more volatility, argues Bloomberg's Marcus Ashworth.

UBS, having subsumed Swiss Bank 25 years ago, is now absorbing Credit Suisse, creating a single Swiss banking giant. The Credit Suisse shareholders get something, the senior bondholders are protected - but that luxury does not extend down the capital stack. How banks are able to finance themselves is poised to become a lot more challenging.

To facilitate the deal and join up the numbers, the Swiss regulator Finma has ordered that about 16 billion Swiss francs ($17.3 billion) of Credit Suisse's riskiest type of debt will now be worthless. Known as Additional Tier 1 bonds, and also called contingent convertibles or CoCos, this debt can be converted into equity or written off if a bank's capital falls below a prescribed level. Owners of the Swiss firm's securities will get nothing. It was a lovely asset class while it lasted.

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