When UBS rescued Credit Suisse in a hastily orchestrated government takeover in March, the controversial write-off of $17 billion worth of Credit Suisse’s additional tier-1 bonds led to heavy losses for high net-worth individuals and family offices in Asia and a spectacular fall from grace for this higher-yielding but risky product.
AT1 bonds are contingent convertibles that are a hybrid of debt and equity. This type of debt has long been popular with Asia’s private banks, which snapped them up for their ultra-wealthy clients because of the juicy yields on offer.
Why AT1s matter
- Additional tier-1 bonds act as shock absorbers if a bank’s capital level falls below a certain level.
- They can be converted into equity or written off.