Credit Suisse deal wipes out high-risk debt holders amid merger with UBS

ZURICH: Holders of $17.3 billion worth of high-risk debt at troubled lender Credit Suisse will lose their investment as part of its rescue merger with Swiss rival UBS, regulators said.

Swiss authorities required that 16 billion Swiss francs in so-called additional tier 1 (AT1) bonds be written down in the mega-merger that was announced late Sunday.

The move will lead to an increase in the bank's core capital, the Swiss Financial Market Supervisory Authority (FINMA) said in a statement.

"The takeover will result in a larger bank, for which the current regulations require higher capital buffers," FINMA said.

AT1 bonds were created following the 2008 global financial crisis to put the burden of losses on investors instead of taxpayers.

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Also known as CoCo, or contingent convertible bonds, they are a high-return investment but banks can suspend interest payments or convert them into bank shares in times of trouble.

But Swiss authorities ordered that the Credit Suisse AT1s be written down altogether as past of the UBS deal, dealing a blow to the bondholders.

Credit Suisse said the bonds "will be written off to zero".

For their part, shareholders will get some three billion Swiss francs, or 0.76 francs per share -- much lower than their closing price on Friday of 1.86 francs.

UBS acquired Credit Suisse after crunch talks over the weekend in a deal aimed at preventing the Swiss bank's troubles from triggering a wider banking crisis.

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Credit Suisse shares sank last week over concerns of contagion to the rest of the sector from the failure of two US regional banks.

The Swiss bank was already shaken by other scandals before the US banking debacle, including its exposure to the 2021 collapses of investment firms Archegos and Greensill.