The European Central Bank is “ready to respond as necessary” following the takeover of Credit Suisse to preserve price and financial stability, its president Christine Lagarde has said
On Sunday UBS agreed to pay $3.2bn for Credit Suisse Group AG and assume up to $5.4bn in losses. However, the Swiss regulator controversially ruled that Credit Suisse’s AT1 bonds notionally valued at $17bn will be valued at zero.
German Chancellor Olaf Scholz welcomed the takeover, as did French Economy Minister Bruno Le Maire, but Italy’s economy minister said he was “surprised” Credit Suisse shareholders were prioritised over AT1 bondholders. The EU regulators’ statement echoed concerns of bondholders that AT1 holders were taking precedence in the bankruptcy process when absorbing losses. “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,” they said.
JP Morgan analysts said “this AT1 writedown by a systemically important bank will have negative implications for the wider European Banks’ AT1 market as well as overall funding profile and cost of equity for the banks”.
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