Financial authority that intermediated the purchase by UBS fixed that titles were reduced to zero
Investors lost at leastUS$ 17.3 billion with the sale of Credit Suisse to competitor UBS on Sunday (19.Mar.2023), which resulted in a drop in the value of securities (the so-called bonds) from the Swiss bank.
This happened because the end (Swiss Financial Market Supervisory Authority, in Portuguese) – the institution responsible for intermediating the merger between Credit Suisse and UBS – determined that 16 billion Swiss francs (about US$ 17 billion) of Additional Tier 1 Bonds (AT1 ) of the European bank were reduced to zero.
The so-called TAdditional Level 1 securities are a type of Contingent Convertible Securities (CoCo) that, in financial crisis scenarios, can be converted into equity or eliminated, as happened in the case of Credit Suisse.
In a statement, Finma stated that “The extraordinary government support will trigger a full par value reduction of all Credit Suisse AT1 debt worth around CHF 16 billion and therefore an increase in principal capital”. read herein English (124 KB).
“The acquisition will result in a larger bank, for which current regulations require higher capital reserves. Finma will grant appropriate transition periods for them to be built. Finma will closely monitor the transaction and compliance with all supervisory law requirements.”he said.
The decision was also communicated by the Credit Suisse on Sunday (19.Mar). In a note, the European bank said that it was informed by the Financial Market Supervisory Authority of Switzerland that determined the reduction of bonds at an aggregate face value of approximately $17.3 billion to zero.
Here’s the full from the Credit Suisse press release (122 KB).
UNDERSTAND THE CASE
On Tuesday (14.Mar), Credit Suisse Group AG reported have identified “material weaknesses” in your financial reports for the past 2 years. The announcement was made in the 2022 annual report. full (6.7 MB, in English).
On Wednesday (March 15), the bank’s shares fell by up to 30.8% at the day’s low and led to the fall of the global banking sector. In Brazil, the 5 main financial institutions on the B3 (São Paulo Stock Exchange) lost BRL 35.7 billion in market value in 4 trading sessions from March 8 to 14.
Hours later, the Financial Times reported that investment bank executives held meetings with representatives of the Swiss Central Bank and Finma. Also according to the newspaper, Credit Suisse asked the monetary authorities for a public statement of support.
Later, the Swiss Central Bank stated that would provide liquidity support to Credit Suisse. The statements were given in a joint announcement with Finma.
“Credit Suisse meets capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB [Banco Nacional da Suíça] will provide the CS [Credit Suisse] liquidity”said the note.
In response, Credit Suisse announced on Wednesday night (March 15) that it must take a loan from the Swiss Central Bank of US$ 54 billion (about 50 billion Swiss francs) through a covered loan facility and a short-term liquidity facility.
On Thursday (16.Mar), Credit Suisse shares went up 19.15% with the announcement of the liquidity injection. The high occurred 1 day after registering a sharp drop of 24.11%.
Also on Thursday (16.Mar), the news agency Reuters reported that US shareholders of Credit Suisse sued the Swiss investment bank. They claim that there was fraud on the part of the institution by hiding information about the bank’s finances.
The lawsuit was filed in a federal court in the city of Camden, in the State of New Jersey. Credit Suisse Chief Executive Ulrich Koerner and Chairman Axel Lehmann are among the defendants.
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