Credit Suisse’s riskiest bonds could be wiped out if Swiss authorities go through with nationalization – Fortune

Ulrich Koerner, CEO of Credit Suisse Group. Bondholders could take punitive losses on some of Credit Suisse’s riskiest bonds. Hollie Adams/Bloomberg via Getty Images

Credit Suisse Group AG’s riskiest bonds cut their lead on Sunday amid fears that Swiss authorities could be forced to nationalize the bank if a deal with UBS Group AG fails. If that happens, the bonds will likely be wiped out as part of the bailout.

Bonds, including the riskiest part of the equity stack, the additional Tier 1 notes, were listed at prices ranging from 30 to 50 cents on the dollar, down about 20 cents from about an hour earlier, according to people with knowledge. of the case, asking not to be named because OTC market price quotes are private. They are still higher than their Friday close, when prices ranged between 20 and 30.

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

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 either taking over the bank in full or holding a significant stake if the UBS takeover fails, although nothing has been agreed. 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.