“Common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier 1 be required to be written down,” the European Central Bank underlined on Monday. The ECB thus confirmed that holders of Common Equity Tier 1 (CET1) capital of a Eurozone bank in a crisis similar to what happened to Credit Suisse Group AG would suffer losses before AT1 bondholders d
Swiss authorities opted to write off Credit Suisse’s AT1 bonds valued at $17 billion, rendering them worthless and leaving AT1 bondholders without compensation in the UBS Group AG’s takeover of its rival. On the other hand, Credit Suisse’s shareholders will receive 3 billion Swiss francs as part of the agreement.
The controversial move caused commercial bank stock to drop earlier in the day across the Eurozone. In today’s statement, the ECB stressed that “the European banking sector is resilient, with robust levels of capital and liquidity” and that “additional Tier 1 is and will remain an important component of the capital structure of European banks.” NN: As part of its takeover of Credit Suisse, UBS is writing down $17 billion in so-called Additional Tier 1 bonds. These bonds were pioneered after the 2008 financial crisis, and are either written down or converted to equity if a bank’s capital buffers fall below a specified level. The $17 billion writedown is the largest in Europe’s AT1 market since its inception. Credit Suisse’s bondholders have been fucked they are losing everything while shareholders are still getting paid out. Most people in the banks involved that i talked to did not even now what type of the banks debt instruments they held. Share holders are normally paid after CET1 and AT1 holders. I guess when your trying to figure out what sex you are today and fret over the climate change end of the world your banks capital instruments holdings are the least thing on your mind. Never mind the underwater Treasuries you bought when you though interest rates during a massive inflation and a much announces FED rate increase would stay at zero for ever.