Credit Suisse Collapse

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22 Mar 2023
146

Switzerland's second largest bank Credit Suisse is now becoming the scrap of history. It is sad because Swiss bank had been famous for its prestige private banking operation in the world. The bailout from the Swiss government in pulling UBS to takeover Credit Suisse (well they don't admit it is a bailout) is now causing more trouble down the line. As Swiss government facilitated the bailout that required Credit Suisse to write off its $US 17 Billion AT1 bond (Additional Tier 1 or Hybrid bond that is convertable to Bank's equity). This is really wiping off the presitage name of Swiss bank for being the world's most trusted and secured. The Swiss government just did that for $17 billion, it is really a surprise and reflection of their incompetence. It is like adding oil to fire. This is causing further confidence shaking to the market especially the corporate bond market, when the bailout is suppose to calm the market's uneasiness. When you think investing in a top bank is the safest way...Poof...total loss of your money....An action from the Swiss government that sounds like communism.


Corporate finance practice taught us that debt should have priority over equity in money recovery when a company face bankruptcy. In this case Credit Suisse's equity holders get $30 billion back from the UBS acquitsition but none for AT1 bond holders.

This is causing investors to run away for Crypto and other safer assets like US treasury. Bitcoin is on the rise.

This turmoil is yet to fan out further negative sentiment.



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18 Comments

B
andrewsaul
The AT1 Bonds carried a higher interest rate BUT clearly stated they could be clawed back if these exact circumstances happened. Credit Suisse had normal bond holders and they got paid out (as per usual). Given the AT1 contracts clearly stated the conditions and Credit Suisse regularly pointed those out when selling them to clients I don't think anyone is that surprised. They're mad they took risks they shouldn't have for more returns, but that's the market. The AT1 bonds were a direct reaction to the last big financial crisis in the EU and so were a host of other financial regulations. Banks didn't like it but they complied and so we see virtually not bailouts. Now the US.... well they responded to the 2008 financial crisis by gradually removing more and more safeguards. The regulations that allowed SVB and others to legally take huge risks with their reserves was passed during the Trump administration.. https://youtu.be/hV0gpO1B6tU
Johnson Chau
Very sad to see such a large bank with 100+ year history to have collapsed like this. If it weren't for the acquisition by UBS, it would have be goodbye :(
Napes
The concern here is that we have not learnt from past mistakes during the global financial crisis. How can these large institutions fail like this or fail to manage the systematic risk and operational risk that exposed them to such catastrophic impacts. Alarming
ZeroRequiem
I heard Justin Sun was trying to purchase this bank, it seems he was unsuccessful.
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