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Credit Suisse AT1 perpetuals
22 Mar 2023 (1204 views)  

1. An investor bought the AT1 perpetuals issued by Credit Suisse. It offered a coupon of 5%. 

His broker told him that, following the forced sale of Credit Suisse to UBS, the Swiss regulator exercised the non viable clause and wrote off these AT1 perpetuals to zero. Currently the value of the AT1 perpetuals is zero and illiquid so cannot be sold.

Shareholders also could not vote on the merger with UBS. They saw the value plunge from $1.86 to $0.72 overnight. It is unprecedented and that’s why there is talks on legal action.

2. Explanation of this security

AT1 perpetuals are a type of hybrid security that Credit Suisse has issued as part of its capital structure. AT1 stands for "Additional Tier 1," which refers to a type of capital that is recognized under Basel III banking regulations. These securities are perpetual, which means that they have no set maturity date and can remain outstanding indefinitely.

Credit Suisse's AT1 perpetuals are designed to provide a higher yield to investors than traditional debt securities, while also absorbing losses in the event that the bank experiences financial difficulties. This is because AT1 perpetuals are structured to convert to equity in certain circumstances, such as if the bank's capital ratio falls below a certain level.

AT1 perpetuals have a higher ranking in terms of security compared to shares in Credit Suisse. In the event of the bank's insolvency or liquidation, AT1 perpetuals are considered a form of debt and rank higher than shares in the bank's capital structure. They have a higher claim on the bank's assets and earnings than shares and are designed to absorb losses before shares.

AT1 perpetuals are considered a hybrid security that combines elements of both debt and equity. They have features that are similar to debt, such as a fixed coupon and a maturity date that can be extended, but also have the ability to convert to equity or be written down in certain circumstances. This allows the bank to use them as a tool to meet regulatory capital requirements, while also providing investors with a higher yield than traditional debt securities.

It's important to note that AT1 perpetuals still carry a significant level of risk, as they are designed to absorb losses in the event of the bank's financial difficulties. Investors should carefully consider their risk tolerance and investment goals before investing in AT1 perpetuals of Credit Suisse or any other financial institution.

3. TKL's view

As the AT1 perpetuals rank higher in security than shares of Credit Suisse, they should receive some payout before the shareholders. It is unfair, and possible illegal, that the shareholders get some payout and the AT1 perpetuals get nothing. 

I hope that the Swiss regulator realize the mistake that they have made. 

Tan Kin Lian

Credit Suisse AT1 perpetuals
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1. An investor bought the AT1 perpetuals issued by Credit Suisse. It offered a coupon of 5%. 

His broker told him that, following the forced sale of Credit Suisse to UBS, the Swiss regulator exercised the non viable clause and wrote off these AT1 perpetuals to zero. Currently the value of the AT1 perpetuals is zero and illiquid so cannot be sold.

Shareholders also could not vote on the merger with UBS. They saw the value plunge from $1.86 to $0.72 overnight. It is unprecedented and that’s why there is talks on legal action.

2. Explanation of this security

AT1 perpetuals are a type of hybrid security that Credit Suisse has issued as part of its capital structure. AT1 stands for "Additional Tier 1," which refers to a type of capital that is recognized under Basel III banking regulations. These securities are perpetual, which means that they have no set maturity date and can remain outstanding indefinitely.

Credit Suisse's AT1 perpetuals are designed to provide a higher yield to investors than traditional debt securities, while also absorbing losses in the event that the bank experiences financial difficulties. This is because AT1 perpetuals are structured to convert to equity in certain circumstances, such as if the bank's capital ratio falls below a certain level.

AT1 perpetuals have a higher ranking in terms of security compared to shares in Credit Suisse. In the event of the bank's insolvency or liquidation, AT1 perpetuals are considered a form of debt and rank higher than shares in the bank's capital structure. They have a higher claim on the bank's assets and earnings than shares and are designed to absorb losses before shares.

AT1 perpetuals are considered a hybrid security that combines elements of both debt and equity. They have features that are similar to debt, such as a fixed coupon and a maturity date that can be extended, but also have the ability to convert to equity or be written down in certain circumstances. This allows the bank to use them as a tool to meet regulatory capital requirements, while also providing investors with a higher yield than traditional debt securities.

It's important to note that AT1 perpetuals still carry a significant level of risk, as they are designed to absorb losses in the event of the bank's financial difficulties. Investors should carefully consider their risk tolerance and investment goals before investing in AT1 perpetuals of Credit Suisse or any other financial institution.

3. TKL's view

As the AT1 perpetuals rank higher in security than shares of Credit Suisse, they should receive some payout before the shareholders. It is unfair, and possible illegal, that the shareholders get some payout and the AT1 perpetuals get nothing. 

I hope that the Swiss regulator realize the mistake that they have made. 

Tan Kin Lian