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Credit Suisse Rescued By UBS (Except AT1 Holders)
Simon Adamson – Head of Global Financials and Research
Executive Summary
- After an extraordinarily tumultuous week in the markets, UBS has been prevailed upon to take over Credit Suisse, backed by government protection for potential future losses.
- However, CS’s AT1s have – contentiously in our view – been written off – even though shareholders will retain some value.
- On the other hand, this is probably the best possible solution for Credit Suisse’s senior bondholders – less so maybe for UBS’s.
- We caution that the deal was put together at breakneck speed, and some aspects might yet be challenged – but for now we think it should restore confidence in Credit Suisse, and more widely in the European bank sector.
- However, the decision to write down AT1s to zero looks short-sighted and could backfire if, as we expect, the wider European bank AT1 market reacts badly.
Relative Value
Although full details are yet to emerge, the takeover by UBS should in our view be sufficient to reverse the crisis in confidence that has engulfed Credit Suisse (CS). It appears that no losses will be imposed on CS senior bonds, so prices should recover significantly, as they will become obligations of UBS, one of Europe’s strongest banks. After speculation about resolution, bail-in or restructuring that could have led to write-downs or conversion of HoldCo senior bonds, this is the best possible outcome for CS senior bondholders.
The opposite is true for holders of CS AT1s, however. According to FINMA: “The extraordinary government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around CHF 16 billion, and thus an increase in core capital.” We look at this in more detail below. While AT1 prices had sunk to 30c or below last week, we are still very surprised FINMA has chosen to take this route.
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