Traders nervy at FTSE open after Asian bank stocks tank – despite Credit Suisse rescue
The global sigh of relief at the rescue of Credit Suisse does not appear to have lasted long, with big banks battered in trading overnight in Asia.
HSBC and StanChart both took more than a six per cent hit in Hong Kong as investors, already spooked by volatility in banking across the world, took flight.
Part of the concern is driven by one of the technicalities of the Credit Suisse deal.
As part of the Credit Suisse deal, holders of so-called AT1 bonds – known as CoCos (Convertible Contingencies) because they can be converted into equity if a bank’s capital or strength falls below a particular level – have been wiped out.
Technically shareholders sit underneath holders of AT1 bonds in the hierarchy of who should be paid out in the event of a collapse, but the Swiss regulator has elected to shift around that payout structure – spooking holders of AT1s in other banks.
Around $17bn of notional value AT1s went to zero yesterday as part of FINMA’s decision.
“It’s stunning and hard to understand how they can reverse the hierarchy between AT1 holders and shareholders,” Jerome Legras, head of research at Axiom Alternative Investments, an investor in Credit Suisse’s AT1 debt, told Reuters overnight.
Credit Suisse was sold for around $3bn to UBS in a shotgun marriage brokered by the Swiss government over the weekend.
In an extraordinary press conference last night, the Swiss President said deposit outflows on Friday at Credit Suisse on Friday meant it was “no longer possible to restore the necessary confidence” in the bank and that a “stabilising” solution was required.
“This solution is a takeover of Credit Suisse by UBS,” Alain Berset said, adding that the historic bank’s failure would have had “unthinkable consequences for Switzerland and the international markets.”