Canada’s banking regulator reaffirms creditor hierarchy after Credit Suisse deal angers bondholders
2023.03.20 18:23
© Reuters. FILE PHOTO: The Credit Suisse logo is seen at their offices at Canary Wharf financial district in London,Britain, March 3, 2016. REUTERS/Reinhard Krause
(Reuters) – Canada’s banking regulator said on Monday that those who hold Additional Tier 1 (AT1) and Tier 2 debt will be entitled to a more favorable outcome if a bank runs into trouble.
The Office of the Superintendent of Financial Institutions reinforced its guidance in the wake of a rescue plan for Swiss lender Credit Suisse that appeared to leave some of the bank’s junior bondholders with nothing.
If a bank reaches the point of “non-viability”, common shareholders of the bank will be the first to suffer losses, the Canadian regulator said.
Credit Suisse said on Sunday that 16 billion Swiss francs ($17.22 billion) of its AT1 debt will be written down to zero on the orders of the Swiss regulator as part of its rescue merger with UBS Group AG (SIX:).
It means AT1 bondholders appear to be left with nothing while shareholders, who usually rank below bondholders in terms of who gets paid when a company collapses, will receive $3.23 billion under the deal.
Lawyers from Switzerland, the United States and UK are talking to a number of Credit Suisse AT1 bond holders about possible legal action, law firm Quinn Emanuel Urquhart & Sullivan said on Monday.
($1 = 0.9285 Swiss franc)
