Credit Suisse AT1 bonds, 2023

Bondholders wiped out while shareholders were paid

On 19 March 2023 the Swiss authorities arranged the takeover of Credit Suisse by UBS for about CHF 3bn in UBS shares, backed by government guarantees and central bank liquidity. The regulator, FINMA, ordered CHF 16bn of Credit Suisse’s additional tier 1 bonds written down to zero. Shareholders received something; AT1 holders, whom most investors assumed ranked above them, received nothing. The bonds’ own terms allowed a write-down on a viability event involving extraordinary government support, whatever the bank’s capital ratio. The market had priced the statute; the contract said otherwise.

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What the lesson covers

1. What happened
2. The instrument
3. Why holders lost everything
4. What it cost
5. What it teaches

Key terms

• Additional tier 1 — Perpetual bank capital with cancellable coupons, designed to absorb losses before senior creditors.
• Contingent convertible — A bond that converts into equity or is written down when a specified trigger is hit.
• Viability event — A trigger based on a regulator’s judgment that a bank cannot survive without extraordinary support.
• Write-down — Reducing a bond’s principal, in part or in full, without giving holders anything in exchange.
• CET1 ratio — Common equity tier 1 capital as a share of risk-weighted assets, the core measure of bank solvency.
• Creditor hierarchy — The order in which claims on a failed firm absorb losses, normally equity first.

Every key term, A to Z

In practice

Bank capital investors now read trigger and loss-absorption clauses jurisdiction by jurisdiction, distinguish write-down from conversion structures, and model AT1 against regulators’ stated resolution approach rather than the textbook hierarchy. Issuers outside Switzerland have pointed to their authorities’ statements that equity absorbs losses first.

Read next

• Credit-Linked Note — A bond whose repayment depends on a credit event
• Credit Default Swap — Insurance against a borrower defaulting
• Archegos, 2021 — Five banks, one position, and none of them could see it

In the app, Credit Suisse AT1 bonds, 2023 carries a five-step lesson, a worked example and a bank of twelve questions drawn differently every sitting.

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