Credit Suisse’s $17 billion AT1 bonds remain in balance amid talks

The $17.3 billion stack of its riskiest Credit Suisse Group AG bonds is on a knife edge as investors risk either being wiped out by a nationalization or facing potentially record gains if a deal with UBS Group AG succeeds.

It’s a bizarre case of an almost binary outcome for traders frantically changing their quotes on the bank’s additional Tier 1 notes this rare weekend session. A deal with UBS likely means only shareholders would feel the pain and the bonds would have a very good chance of eventually reaching 100% of face value. No deal could mean they crash to zero as regulators impose writedowns. The contrasting scenarios triggered huge swings in the levels at which banks are willing to buy or sell throughout the day on Sunday.

Additional Tier 1 tickets were listed at prices ranging from the mid-20s to 40 cents on the dollar, down about 20 cents from about an hour earlier, according to people with knowledge of the matter, asking not to be named because of the price. quotations on the over-the-counter market are private. They are broadly similar to their closing levels on Friday, when prices ranged between 20 and 30.

It’s a quick turnaround for the narrative, which turned positive on Sunday amid optimism that UBS’s up to $1 billion bid would have averted a scenario that saw bondholders suffer losses. punitive on some of the notes.

The securities, introduced after the global financial crisis, are designed to help banks bolster their capital to meet regulations designed to prevent defaults. They can be canceled if a bank’s capital levels fall below a specified level. In the case of Credit Suisse, its Common Equity Tier 1 capital is expected to fall below 7% of its risk-weighted assets.

Swiss authorities are now considering a full or partial nationalization of Credit Suisse as a fallback option if a UBS deal fails over time. Reuters reported on Sunday afternoon that Swiss authorities were considering imposing losses on bondholders as part of a bailout.

Several banks, including Goldman Sachs, Morgan Stanley and Jefferies Financial Group, kept their bond sales and trading desks open all weekend for Credit Suisse bonds, a rare event except in times of crisis.

(Add scenario info in first and second paragraphs, update pricing in third)


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