Credit Suisse writes down $17 billion of bonds to zero, angering holders

By Pablo Mayo Cerqueiro and Chiara Elisei

LONDON (Reuters) – Credit Suisse has written down its Additional Tier 1 bonds to zero as part of its takeover by UBS, angering some bondholders who thought they would be better protected in a rescue deal announced on Sunday.

The Swiss regulator and Credit Suisse said that the bonds, which are a riskier type of debt than traditional bonds, have a notional value of 16 billion Swiss francs ($17.24 billion). Credit Suisse said it had been informed by the regulator, FINMA, on Sunday of the decision to write the bonds down.

FINMA president Marlene Amstad, when asked about the decision at a press conference following the UBS takeover announcement, said the regulator had chosen to stick to the too-big-to-fail framework and trigger the bonds.

Engineered in the wake of the global financial crisis, AT1 – or CoCo – are a form of junior debt that counts towards banks’ regulatory capital. They sit just above equity in the priority ladder for repayment in a bankruptcy process, and are designed to be converted into shares when a lender’s capital buffers are eroded beyond a certain threshold.

Some bondholders were angry at the move to write down the bonds to zero, especially as it appears bondholders will fare worse than shareholders in the deal.

“It’s stunning and hard to understand how they can reverse the hierarchy between AT1 holders and shareholders,” said Jerome Legras, head of research at Axiom Alternative Investments, an investor in Credit Suisse’s AT1 debt.

($1 = 0.9280 Swiss francs)