Jobaaj Stories
A day after Jobaaj Stories reported the acquisition of distressed bank Credit Suisse by UBS the former appears to be in trouble again.
Credit Suisse, which was in trouble due to depleting investor confidence and liquidity, was all set to be acquired by UBS in a bid to avoid the collapse of the Swiss banking system.
The Swiss government was advocating for the UBS acquisition of Credit Suisse due to its status as a Globally Systemically Important Bank. If such a bank were to collapse, it could potentially trigger another financial crisis akin to the 2008 crisis.
Since the global economy is not in the best shape due to the Russia-Ukraine war, prevention of this crisis was important. The Swiss government is assisting UBS in various ways, including a CHF 100 billion assistance and a CHF 9 billion loss guarantee!
As such, UBS announced the acquisition of Credit Suisse for a consideration of $3.25 billion, which resulted in the shareholders of the bank suffering a major loss.
However, the deal also included a wipeout of AT1 bonds of CHF 16 billion! Shareholders received shares of UBS from the deal, but the bondholders were left broke!
This is the largest loss to AT1 bondholders since the concept came into being(excluding the 2008 financial crisis). Shareholders, who are supposed to get hit first, were in a position better than bondholders!
The same has angered bondholders as they same are planning possible legal actions. Since AT1 bonds were formed to absorb risks and hence received higher interests, the bank is not obligated to repay them.
However, US law firm Quinn Emanuel Urquhart & Sullivan has announced that it is in discussion with a "significant percentage" of bondholders and a call for the same is expected to be held tomorrow.
This move has also caused outrage in the bond market as prices of bonds dropped all across the globe, threatening the $250 billion market of AT1 bonds!
According to the acquisition plan, shareholders of Credit Suisse were getting a 41% haircut as they were getting CHF 0.76 against shares worth CHF 1.86! Therefore, shares of Credit Suisse tanked over 55% to close at CHF 0.82 per share!!
- Aman Agarwal.
