Season 7, Episode 10: The curious case of Credit Suisse (AT1) bondholders

The triggering of a complete write-down of the nominal value of all Credit Suisse AT1 debt has come as a shock to some investors. Regulators took what some saw as an irregular move to write down 16 billion Swiss francs of Credit Suisse bonds, known as Additional Tier 1 or AT1 debt, to zero, during UBS's rescue of Credit Suisse on the weekend of March 18/19.In this episode of Compliance Clarified, Alexander Robson, managing editor of Regulatory Intelligence in London, is joined by Helen Parry, senior regulatory intelligence expert in London to discuss contingent convertibles, otherwise known as CoCo bonds, and the reasons why regulators acted the way that they did.Under the deal, holders of Credit Suisse AT1 bonds will get nothing, while shareholders, who usually rank below bondholders in terms of who gets paid when a bank or company collapses, will receive $3.23 billion. The news hurt AT1 bonds issued by other European banks and they came under fresh selling pressure.If AT1s are converted into equity, this supports a bank's balance sheet. They also pave the way for a "bail-in", or a way for banks to transfer risks to investors and away from taxpayers if they get into trouble, according to rules that policymakers passed after the 2008 financial crisis.In Switzerland, the terms of the bonds stipulate that in a restructuring, the regulator is not obliged to stick to the traditional capital structure, which has spelt bad news for Credit Suisse bondholders. It has also raised eyebrows among other regulators elsewhere. PROGRAMME NOTESFINMA approves merger of UBS and Credit Suisse: www.finma.ch/en/news/2023/03/20230319-mm-cs-ubs/Factbox: Credit Suisse's troubles - spies, money laundering and takeover: www.reuters.com/business/finance/credit-suisses-troubles-spies-money-laundering-central-bank-cash-2023-03-16/How Credit Suisse has evolved over 167 years: www.reuters.com/business/finance/how-credit-suisse-has-evolved-over-167-years-2023-03-18/ (From behind the Regulatory Intelligence paywall)UBS faces huge cultural challenge in integrating Credit Suisse, say consultants: http://go-ri.tr.com/YI8NM3OPINION: Scale of U.S. banks' unrealized losses, distressed borrowing and central bank actions point to wider problems: http://go-ri.tr.com/oyHrxD Compliance Clarified is a podcast from Thomson Reuters Regulatory Intelligence.Listen to wide-ranging, insightful discussions on all things compliance for financial services firms. We delve into the hot topics of the day, the challenges faced and offer up practical ideas for emerging good practice. We de-mystify regulation and explore the art, as well as the science, of the ever-expanding role of the compliance officer.  Enforcements, digital transformation, regulatory change, governance, culture, conduct risk – anything and everything impacting the compliance function is up for discussion.