Swiss financial regulator defends write down of Credit Suisse AT1 bonds

Urban Angehrn has been the director of FINMA since 2021. © Keystone / Anthony Anex

The Swiss Financial Market Supervisory Authority (FINMA) justified its controversial decision to write down the value of Credit Suisse's AT1 bonds as part of the UBS takeover of Credit Suisse, saying the “contractual conditions” were met.

Switzerland has drawn the ire of bondholders after FINMA announced it was writing off the AT1 (Additional Tier 1 capital) bonds, worth around CHF16 billion ($17 billion) as part of the government-orchestrated takeover of ailing Credit Suisse by its rival UBS. On Wednesday, the Financial Times reported that US bondholders are preparing to sueExternal link the Swiss government over losses.

In a statementExternal link issued on Thursday, FINMA said that the write down complied with contractual obligations. “AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a ‘Viability Event’, in particular if extraordinary government support is granted,” wrote FINMA on Thursday.

As part of the takeover deal, the SNB agreed to smooth the transaction by providing CHF100 billion ($109 billion) in liquidity to UBS and Credit Suisse. The government also agreed to absorb up to CHF9 billion of potential UBS losses.

The regulator instructed Credit Suisse to write down AT1 bonds, widely regarded as relatively risky investments, to zero, while equity shareholders will receive payouts at the stock’s takeover value. This concerns 13 AT1 bonds, whose nominal value is close to CHF16 billion.

The SNB’s loan to Credit Suisse, backed by the federal government meant that “these contractual conditions were met for the AT1 instruments issued by the bank”, said FINMA. 

FINMA suggested that creditors address complaints to the “issuers of the capital instruments”, which in this case is Credit Suisse.