Swiss regulator FINMA has defended its decision to instruct Credit Suisse to write down its AT1 bonds, calling it a "viability event". The move came after Credit Suisse received a loan from the Swiss National Bank last week, backed by the federal government. The regulator said that the conditions for a writedown had been met, and instructed Credit Suisse to write down 16 billion Swiss francs of AT1 bonds to zero. This decision is significant, as it upends the usual European hierarchy of restitution in the event of a bank failure. Bondholders are exploring legal action over the contentious writedown.
FINMA stated that "the AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a 'viability event,' in particular if extraordinary government support is granted". The regulator added that "as Credit Suisse received extraordinary liquidity assistance loans secured by a federal default guarantee on 19 March 2023, these contractual conditions were met for the AT1 instruments issued by the bank".
After its share price plummeted to an all-time low last week, Credit Suisse secured a loan of up to 50 billion Swiss francs from the Swiss National Bank, and substantial liquidity assistance from authorities. The Swiss federal government enacted an emergency ordinance to guarantee the additional liquidity assistance, and authorized FINMA to order the borrower and the financial group to write down Additional Tier 1 capital.
According to FINMA CEO Urban Angehrn, "a solution could be found to protect clients, the financial centre and the markets" on Sunday. "In this context, it is important that CS’s banking business continues to function smoothly and without interruption. That is now the case."
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