The Credit Suisse AT1 Writedown
When UBS acquired Credit Suisse in 2023, Swiss regulators wiped out about $17 billion of Credit Suisse's AT1 bonds to zero while shareholders still received some value, inverting the usual order of who takes losses first.
When UBS agreed to acquire a collapsing Credit Suisse in March 2023 in a regulator-brokered rescue, Swiss authorities also announced that Credit Suisse's roughly $17 billion in Additional Tier 1 (AT1) bonds would be written down to zero. Meanwhile, Credit Suisse shareholders — who sit below bondholders in almost every normal insolvency — still received UBS stock worth something for their shares. That ordering shocked credit markets.
AT1 bonds are designed to absorb losses at the point a bank becomes non-viable, but investors had generally assumed shareholders would be wiped out first — Switzerland's regulator used specific contractual language in these particular bonds to write them down even while shareholders retained some recovery.
AT1 bonds (also called contingent convertibles, or CoCos) exist specifically to convert to equity or be written down when a bank's capital falls below a trigger, acting as a shock absorber that keeps a distressed bank solvent without a taxpayer bailout. The market convention assumed that if a bank got bad enough to trigger an AT1 writedown, common shareholders — junior to bondholders in ordinary bankruptcy — would already have been zeroed out first. Credit Suisse's specific bond documentation, however, gave Swiss regulator FINMA the contractual authority to write the AT1s down upon a "viability event" independent of what happened to equity, and FINMA exercised it.
The result was an immediate repricing of AT1 risk across European banks, since investors realized the assumed loss-absorption hierarchy was not a universal legal guarantee but depended on the exact wording of each issuance's terms — a reminder that contract language, not market convention, determines who actually gets paid.
Further reading
- FINMA press release, 'FINMA approves merger of UBS and Credit Suisse'