Financial markets are constantly changing. We witnessed just how fast in March when three US-based banks failed within days of each other, to be followed by an unprecedented, hastily orchestrated takeover of struggling lender Credit Suisse by Swiss rival UBS.
The impact on global markets when Silvergate Capital, Signature Bank and Silicon Valley Bank collapsed was deep. The volatility grew worse when Credit Suisse – a global systemically important bank – had to be rescued with support from the Swiss National Bank.
But bank investors had more bad news to contend with. The Swiss authorities’ decision to fully write off about SFr16 billion ($17 billion) of Credit Suisse’s additional tier-1 (AT1) bonds while offering shareholders of the failed bank UBS equity will reverberate through the market for some time.
Banks based in Asia but with a global presence naturally suffered more. Others, much less so
Many AT1 holders saw the move as a change in the capital hierarchy. AT1 bonds are designed to take losses during a crisis. But equity holders are supposed to take losses before AT1 bond holders, or so many investors believe.