The Swiss banking watchdog’s decision to wipe out about $18 billion worth of high-risk bonds as part of the deal to rescue Credit Suisse Group AG was a possibility investors should have been aware of, Swiss National Bank President Thomas Jordan said.
(Bloomberg) — The Swiss banking watchdog’s decision to wipe out about $18 billion worth of high-risk bonds as part of the deal to rescue Credit Suisse Group AG was a possibility investors should have been aware of, Swiss National Bank President Thomas Jordan said.
“In the AT1 issue the legal setup was very clear,” he said on Friday in St. Gallen in eastern Switzerland. “It is not something where investors can say it was not foreseen to be used under those circumstances.”
Created after the 2008 financial crisis, AT1s are the lowest rung of bank debt, producing juicy returns in good times but taking the first hit when a bank runs into trouble. The risk of a writedown to zero was included in the fine print of the Credit Suisse AT1 brochure.
Angry bondholders say the Swiss government’s decision to enact emergency legislation on March 19 that Finma then invoked hours later was an unfair and disproportionate move. At least 120 claims have been filed against the decision.
Lawyers for the claimants argue that putting shareholders before bondholders runs contrary to the conventions of insolvency proceedings.
–With assistance from Hugo Miller.
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