Risky Credit Suisse Group AG bonds that are set to be written down to zero by regulators were being quoted at prices of a few cents on the dollar on Monday, according to people with knowledge of the matter. Dealers including JPMorgan Chase & Co. and Morgan Stanley are willing to buy risky Credit Suisse debt known as additional tier 1 bonds, or AT1s, for somewhere around 2 cents on the dollar and sell somewhere around 5 cents as of early afternoon on Monday in New York, according to the people. The Swiss bank said on Sunday that the bonds would be written down to zero as a condition of the rescue of the bank. Other banks, including BNP Paribas SA, BTIG, Jefferies Financial Group Inc., as well as JPMorgan and Morgan Stanley, are also getting involved, according to the people, who asked not to be identified discussing private trades. Goldman Sachs Group Inc. traders were preparing to take bids on claims against the bonds in messages circulated late Sunday, according to separate people with knowledge of the matter. The AT1 securities haven’t yet been zeroed out by regulators because Credit Suisse’s emergency sale to UBS Group AG hasn’t yet closed. So for now the securities are still bonds, but dealers are crafting terms of trading that would turn the instruments into claims on Credit Suisse when the debt does get written down to zero, according to traders. Any market participants who buy the securities are looking at whether the bonds may have value amid litigation
. Some investors believe if AT1s are being written down to zero, the bank’s equity should be as well. In this case, UBS agreed to buy the firm for around 3 billion francs in an all-share deal brokered by the Swiss government.
“While the regulators clearly have the authority to wipe out the AT1s, there might be some hope that the deal will be modified to throw them a bone,” said portfolio manager Bill Zox at Brandywine Global Investment Management.
Credit Suisse’s bond documents specified that authorities have the authority to upend the usual rules of priority when imposing losses on investors, according to Bloomberg Intelligence. European Union and UK AT1s do not feature such language,
AT1 securities were introduced after the 2008 global financial crisis to help absorb losses if a bank starts to fail. “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 do. However, 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 Credit Suiss. NN: If the assholes trading trillion of dollars would read the contract in the event of a back failure and take over by goverement siad govermen has the right to not pay AT1 BONDHOLDER FUCKED! YOU SHOULD KNOW IF YOU HAVE AT1 OR CE1 BONDS AND THE FACT IN A BANK FAILURE THEY CAN BE REDUCED TO ZERO! For a fact these shit heads at Black Rock and the like who have trillions of dollars of other peoples money and are paid million to manage this shit for a fact did not understand the risk as Credit Suiss careened over the PAST YEAR to insolvency. They never read the contract. And did not note the default risk in the event of a bank meltdown. Because if they did their was plenty of time to dump them on the next dumber guy down the food chain.
And you wanna hear the really good part. I just checked US financial institutions are still holding them on their books at full value. How do they pull this off. Because the Credit Suiss liquidation is not complete yet. And do you wanna hear the really really really good part. They have filed law suits to stall the liquidations to hold off the right downs eventually they must take.
BI wrote.