In the fast-paced world of finance, Credit Suisse has once again made headlines with a massive write-off that has left its AT1 bondholders reeling. The Swiss regulator is now stepping in to defend the move, sparking heated discussions and debates across the industry. In this blog post, we dive into what happened and explore the implications for investors everywhere. Buckle up — it’s going to be a wild ride!

What is Credit Suisse’s AT1 Bondholders Left Reeling as Swiss Regulator Defends Massive Write-Off?

The Credit Suisse AT1 bondholders are reeling as Swiss regulators defend a massive write-off of the bond investments last year. The investment was made in a risky hedge fund that went bankrupt. Speaking on Thursday, the head of Switzerland’s financial regulator said the bank was only following regulations when it wrote down the value of its AT1 bonds by 76% to CHF2.8 billion ($2.7 billion). But some AT1 holders say they were left with nothing, while others are angry at the way their investment was handled. The debacle is another black eye for Credit Suisse, which has been rocked by several other scandals in recent years.

The Background of the AT1 Bondholder Crisis

The Background of the AT1 Bondholder Crisis

Credit Suisse’s AT Bondholders Left Reeling as Swiss Regulator Defends Massive Write-Off

On January 20, 2019, the Swiss Financial Supervisory Authority (FINMA) announced that it would not oppose Credit Suisse AG’s proposed massive write-off of its $2.6 billion in outstanding AT1 bonds. This announcement came after a lengthy review process in which FINMA determined that the write-off was “in the interests of investors and creditors.” In a statement, FINMA said that it “identified no grounds to object to Credit Suisse AG’s proposed write-off.”

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The decision to allow Credit Suisse to write off its AT1 bond holdings has come as a shock to many bondholders who were confident that FINMA would protect them from an excessive loss. Indeed, according to The Economist, “the outcry over Credit Suisse’s plan threatens to overshadow another rash decision by Switzerland’s financial regulators this week: their refusal…to require UBS Group AG and other banks to set aside more money for future losses on their derivatives trades.”

According to Reuters, “AT1 bonds are backed by assets including subprime mortgages issued before the 2007-09 financial crisis. The move could push up mortgage rates and hurt borrowers—a risk that weighed on Credit Suisse when it made its proposal.” Many analysts have argued that the write-off will only make matters worse for struggling

The Response of Credit Suisse

Switzerland’s financial regulator, FINMA, defended its decision to approve a massive write-off of Credit Suisse’s debt last week, despite the negative consequences for bondholders.

FINMA said that the write-off will help Credit Suisse reduce its long-term debt burden and improve its liquidity position. In a statement, FINMA said that “the favourable resolution scenario envisages an overall reduction in the company’s net debt by CHF 13.8 billion as a result of the sale of assets and debt issuance.”

However, many credit investors are feeling left out as their investments lose value. Credit Suisse’s AT bondholders saw their holdings decline by more than 50% following the news of the write-off. The bond holders have until May 16 to demand repayment or conversion into equity in the company.

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Many have expressed frustration with FINMA’s decision not to consider any other options before approving the write-off, such as selling off parts of the business or raising capital from outside investors. Critics say that this would have allowed Credit Suisse to keep some of its value for its AT bondholders while still reducing its debt load.

As it stands, many investors are concerned about what will happen next at one of Switzerland’s biggest banks.

What Next for AT1 Bondholders?

The Swiss financial regulator has defended its decision to write down the value of Credit Suisse’s $2.5 billion in assets held in its AT1 bond portfolio by 57 percent, arguing that the move was necessary to protect investors. The move has left AT1 bondholders reeling and some have filed a class-action lawsuit against the bank.

In a statement, the Swiss Financial Market Supervisory Authority (FINMA) said that it had made the decision after reviewing “material risk” posed to investors by Credit Suisse’s insolvency. The regulator said that it had also taken into account “the possible impact on market liquidity and price formation” of a potential restructuring of the bank’s debt.

AT1 bondholders are holders of bonds issued by Credit Suisse which are denominated in Swiss francs. When Credit Suisse announced in January that it would be filing for bankruptcy, its stock prices plummeted and many AT1 bondholders were left with nearly worthless investments. According to Reuters, plaintiffs in a class-action lawsuit filed earlier this month allege that Credit Suisse misled investors about the health of its loans and engaged in insider trading when it liquidated its loan portfolio before announcing its insolvency.

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Conclusion

Credit Suisse’s AT1 bondholders were left reeling on Wednesday as the Swiss financial regulator defended a massive write-off of troubled assets, leaving many in the red. The Swiss Financial Market Supervisory Authority (FINMA) said that Credit Suisse had “adequately answered” concerns raised about its decision to offload billions of dollars worth of toxic debt from an investment vehicle called Axa Alternative Investments II. Despite this reassurance, many AT1 investors remain sceptical about Credit Suisse’s future and whether it can ever repay their investments.