They are then converted into equity or written off. The bonds in the $275 billion market are designed to be shock absorbers if a bank's capital levels fall below a threshold. Other AT1 bonds fell in price on Monday on fears about the prospect of losses should other banks get into difficulty. This angered some investors and has prompted lawyers to start investigating potential litigation. Not only did bondholders expect protection, but UBS is paying $3.23 billion to Credit Suisse shareholders. The Swiss regulator's decision inverted the long-established seniority of bondholders over shareholders over the assets of a company in distress. Here's a look at the potential for litigation. Lawyers and dealmakers said the AT1s, which have dropped in value to just a few cents in the dollar following the move, are being traded by hedge funds in a so-called litigation play. These higher-yielding junior bonds emerged from the 2008-2009 crisis as a way to boost bank capital while shifting the risk of losses to investors and away from taxpayers. LONDON, March 23 (Reuters) - Credit Suisse (CSGN.S) bondholders are seeking legal advice after the Swiss regulator ordered 16 billion Swiss francs ($17.5 billion) of Additional Tier-1 (AT1) debt to be wiped out under its rescue takeover by UBS (UBSG.S).
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