Risky AT1 bonds sink due to $17bn Credit Suisse wipeout – Times of India

Among the biggest losers in the shotgun sale of Credit Suisse are investors in the firm’s riskiest bonds, known as AT1s, worth $17 billion. These money managers are set to be wiped out, potentially sending that $275 billion market for bank funding into a tailspin, while threatening blowback for European policy makers in crisisfighting mode.
Money managers are frantically poring through the fine print for these so­called additional tier­1 (AT1) securities to understand if authorities in other countries could repeat what the Swiss government did on Sunday: Wiping them out while preserving $3.3 billion of value for equity investors. That’s not supposed to be the pecking order, some holders in the bonds insist.

As a direct consequence, AT1 bonds of European lenders like Deutsche Bank, Unicaja Banco, Raiffeisen Bank International and BNP Paribas plunged on Monday to record lows. Deutsche Bank’s $792 million note recorded its biggestever oneday decline. It’s the biggest loss yet for Europe’s AT1 market, which was created after the financial crisis to ensure losses would be borne by investors not taxpayers.
One UK bank CEO put it bluntly: The Swiss have killed this key corner of funding for lenders, he said, asking not to be named because the situation is sensitive. His comments underscore how the global financial community is on edge after the UBS takeover of Credit Suisse, which came on the heels of the collapse of three regional US banks. European regulators reiterated on Monday that equities should take losses before bonds.