Credit Suisse crisis: How AT1 wipeout could impact the global bond market
While the fallout of Credit Suisse being ignominiously hoovered up by its arch rival and next-door neighbour on downtown Zurich’s Paradeplatz are still somewhat fuzzy, what is increasingly clear is the knock-on effect of the deal on the global bond market. The biggest losers in the Credit Suisse fire sale are investors in the banking major’s riskiest bonds — called additional tier 1 or AT1 — who are faced with a $17 billion wipeout, potentially pushing Europe’s $275 billion market for these bonds into turmoil, with likely cascading impact across other geographies. This is the biggest wipeout yet for Europe’s AT1 market, overshadowing the only other write-down of this type of security — a $1.45 billion loss for bondholders of Spanish lender Banco Popular in 2017, when it was taken over by Banco Santander to prevent a Credit Suisse-like collapse. But there is a crucial difference. In the Banco Popular case, alongside bonds, equity was also written off; the...