The UBS takeover steadied sharemarkets, but the ECB and BoE interventions raise questions about the future of a $400 billion market in high-yield bank bonds.
| The European Central Bank and the Bank of England took the unusual step of reaffirming the rights of bondholders in a banking crisis, after the Swiss authorities allowed UBS’s takeover of Credit Suisse to“Switzerland does not set standards in Europe,” European Central Bank president Christine Lagarde told a European parliamentary committee on Tuesday , as the bond market was rocked by the implications of the Swiss deal.in which Swiss financial authorities engineered a $4.
Ms Lagarde said the Swiss had “restored orderly market conditions and ensured financial stability”. But her remarks came after an earlier ECB statement that questioned the details of the UBS-Credit Suisse deal. “This approach has been consistently applied in past cases and will continue to guide the actions [of the ECB] ... in crisis interventions.”
AT1 bonds were introduced after the 2008-09 financial crisis to encourage private-sector support for banks. They can be converted into equity if a bank runs into difficulty, but offer a higher interest rate. “There could be legal challenges to the agreement, prolonging the process and creating further uncertainty,” he said in a note to clients.
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