> Regulator Finma said about 16 billion francs of Credit Suisse bonds will become worthless to ensure private investors help shoulder the costs.
That’s a funny way of saying “we’re gonna punish everyone who previously lent money to CS.”
That’s a funny way of saying “we’re gonna punish everyone who previously lent money to CS.”
This question was asked at the end of the press conference, the answer (in english translation) sounded like garbled nonsense.
They are not. The holders of some particular kind of bond designed to be wiped out when some capital thresholds are triggered are wiped out. (It may be debatable if what happened here was or not a trigger event though.)
https://www.credit-suisse.com/about-us/en/investor-relations...
(I mean, it’s true that they would be converted to equity in some scenarios when capital levels are triggered - my comment was misleading - but it’s also true that they are wiped out in other scenarios and it’s the FINMA’s call in this case.)
"In UBS’s deal to buy Credit Suisse, shareholders are getting something (about CHF 3 billion worth of Credit Suisse shares) and Credit Suisse’s AT1 holders are getting nothing: The Credit Suisse AT1 securities are getting zeroed. This is not, to be clear, exactly because Credit Suisse’s CET1 capital fell below 7%; instead, there is a separate clause of the AT1s allowing them to be zeroed if the bank’s regulator decides that zeroing them is “an essential requirement to prevent CSG from becoming insolvent, bankrupt or unable to pay a material part of its debts as they fall due.” Plus, in a situation like this, the banking regulators get to do a certain amount of ad hoc stuff, and they do. (They got rid of the shareholder vote on the deal!) Zeroing the AT1s while preserving a little value for the common does seem to have been done in an ad hoc way; my point is just that it follows very logically from the terms and function of the AT1s."
If however, they required a bail out ... then they cant have had that much capital left. It is not compatible to be bankrupt, but have 40bn of capital, while also only being worth 2bn - one of the statements has to be false.
“There has also been some confusion about solvency being equal to viability. Viability is about the ability to operate viably and independently without any form of extraordinary state support, whereas solvency is merely the ability to pay debts as they fall due. So, one can be non-viable at one point, and still be solvent at that point, which may have been the case for Credit Suisse. Viability asks will the bank last on its own, and solvency asks can they pay their debts.”
When you lend you expect to be paid back unless there is bankruptcy, and then you expect get a place in line for the assets.
The situation where someone else gets to buy the assets out, leaving behind the debt seems unorthodox.
They speedran the bankruptcy, hand wringing and liquidation. The line was formed and all the money has already been handed out.
No lenders or shareholders are in the room at all - shareholders dont get a say on if they want to sell their shares that were worth 7 billion on friday for 2 billion either.
Would you be upset if you loan me 10B on thursday, Bob lends me 10B on Friday, then Monday the Bob says the business will be sold to UBS who will honor his loans but not yours?
> if you loan me 10B on thursday, Bob lends me 10B on Friday, then Monday the Bob says the business will be sold to UBS who will honor his loans but not yours
In your example, Bob is getting back 2bn of his 10bn and I am getting back 0. The term of neither agreement are being respected, people are just being told you get what you get and if you dont like it you can have less. Everyone has been served up a shit sandwich for dinner.
In plain terms, money lent from the government is not discharged in bankruptcy. It all has to get paid back with interest. Private lenders of emergency liquidity and get zeroed out.