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==[[Alternative tier 1 capital]]== | ==[[Alternative tier 1 capital]]== | ||
===[[Debit Suisse]] and the irate bondholders=== | ===[[Debit Suisse]] and the irate bondholders=== | ||
Famously, in that panicked Spring weekend in 2023 when it slipped into history<ref>We have a sense [[Credit Suisse]]’s history is not done just yet but that, like Disaster Area frontman Hotblack Desiato, it is merely spending a year dead for tax (and, er regulatory capital) purposes. It may well be back, at least as a high-street banking brand in Switzerland.</ref> the “trinity” of Swiss regulators put a gun to UBS’s head, forced it to make an honest bank of [[Credit Suisse]] in a process in which it absorbed [[Lucky]]’s equity, and the jewels and hellish instruments of madness and torture secreted around its balance sheet — ''other'' than its AT1s. The regulators instead, by ordinance, directed [[Credit Suisse|Lucky]] to write down its | Famously, in that panicked Spring weekend in 2023 when it slipped into history<ref>We have a sense [[Credit Suisse]]’s history is not done just yet but that, like Disaster Area frontman Hotblack Desiato, it is merely spending a year dead for tax (and, er regulatory capital) purposes. It may well be back, at least as a high-street banking brand in Switzerland.</ref> the “trinity” of Swiss regulators put a gun to UBS’s head, forced it to make an honest bank of [[Credit Suisse]] in a process in which it absorbed [[Lucky]]’s equity, and the jewels and hellish instruments of madness and torture secreted around its balance sheet — ''other'' than its AT1s. The regulators instead, by ordinance, directed [[Credit Suisse|Lucky]] to write down its to zero. | ||
This — and there isn’t really a delicate way to put this, readers so let’s just come out with it — ''pissed the AT1 noteholders the hell off''. | This — and there isn’t really a delicate way to put this, readers so let’s just come out with it — ''pissed the AT1 noteholders the hell off''. | ||
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But the conceptual question this all throws up, in the abstract, is an interesting one: should creditors, however subordinated, ever rank ''behind'' common shareholders? Surely not? | But the conceptual question this all throws up, in the abstract, is an interesting one: should creditors, however subordinated, ever rank ''behind'' common shareholders? Surely not? | ||
Everyone | Everyone knew AT1s could get converted into equity, at which point they rank equally ''with'' shareholders, and even written off — but there seemed to be the expectation that a write-off would only happen if common shareholders are getting written off too. | ||
First, a little spoiler: ''effectively'' ranking behind shareholders and ''actually'' ranking behind shareholders feel similar — especially if you have just been written down to zero while the shareholders live to see another day — but they are quite different things. | First, a little spoiler: ''effectively'' ranking behind shareholders and ''actually'' ranking behind shareholders feel similar — especially if you have just been written down to zero while the shareholders live to see another day — but they are quite different things. | ||
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The obvious thing about this is that, for a buy and hold, long term investor, it's return has been better than the common equity, ''including after it was nixed''. The combined coupons since issue are easily more than the final acquisition price. In all circumstances ''except a thermonuclear meltdown'' the Cocos were a vastly better investment. | The obvious thing about this is that, for a buy and hold, long term investor, it's return has been better than the common equity, ''including after it was nixed''. The combined coupons since issue are easily more than the final acquisition price. In all circumstances ''except a thermonuclear meltdown'' the Cocos were a vastly better investment. | ||
“Ah yes, you counter, but tell that the the distressed investors who bought the AT1s on Saturday. | |||
And we should not feel undue sympathy for distressed — ahem vultures — looking to buy a 7% fixed instrument for cents on the dollar when the issuer is in the midst of a well telegraphed existential meltdown? ''We should not''. Even if the ones who ''did'' read the prospectus. | |||
The tier one capital layer is there to protect depositors and vouchsafe the stability of the wider financial system, whose collected interests are best served by the bank remaining a going concern. That they happen to share that interest with the banks ordinary shareholders is beside the point. The bonds reward long-term investors — those who read the terms and clocked that “Perpetual Tier 1 Contingent Write-Down Capital Notes” meant these were notes that could be written down in a time of capital stress — most likely had a bank to sell last week. | |||
It sounds like there were plenty of buyers. | |||
{{sa}} | {{sa}} |