Holders of $17B of Credit Suisse bonds are set to lose their investments.
The loss will follow the completion of UBS's acquisition of its struggling Swiss competitor in a state-backed deal intended to reassure financial markets.
- UBS announced on Sunday that it reached a deal to acquire Credit Suisse for $3.25B.
- The deal values Credit Suisse at about 60% less than it was worth at the close of trading on Friday.
- Swiss regulator Finma ordered Credit Suisse's Additional Tier-1 (AT1) bonds to be completely written down as part of the agreement.
- The
UBS deal initially caused Credit Suisse’s AT1 bonds to increase in
value due to expectations that the rescue would prevent bondholders from
facing significant losses.
- AT1 bonds are primarily held by hedge funds, professional investors, and Asia-based retail and wealth management investors.
- The financial instruments take losses when the capital of the institution that issued them falls below a pre-established level.
- Holders of AT1s, the riskiest class of European bank debt, saw their investments wiped out when Santander acquired its Spanish competitor Banco Popular for one Euro in 2017.
