Equity holders to absorb losses before AT1 investors: MAS

EQUITY holders will first absorb losses from the resolution of a financial institution before those who bought Additional Tier-1 (AT1) and Tier-2 capital instruments, said the Monetary Authority of Singapore (MAS) on Wednesday (Mar 22).

MAS said this is in accordance with guidelines set out by the Financial Stability Board, an international body that monitors the global financial system, on the hierarchy of claims in liquidation.

The late night statement follows news over the weekend that Credit Suisse will write down 16 billion Swiss francs (S$23.1 billion) of its AT1 debt to zero on the orders of the Swiss regulator as part of its rescue merger with UBS.

MAS said creditors who receive less in a resolution compared to what they would have got if the financial institution had been liquidated, would be able to claim the difference from a resolution fund that would be funded by the financial industry. 

This same compensation framework would also apply in the exceptional situation that MAS departs from the creditor hierarchy, in order to contain the potential systemic impact of the financial institution’s failure or to maximise its value for the benefit of all creditors as a whole.

Following news that Credit Suisse would write down its AT1 bonds, reports have emerged that a number of bondholders are considering possible legal action, after their bonds were wiped out.

MAS said AT1 bonds in Singapore are offered in the wholesale market, which is only for institutional investors, accredited investors or transactions in denominations of at least S$200,000.

No prospectus for the offering of these bonds to retail investors has been registered with the central bank.

As with other investment products, FIs that offer or distribute AT1 bonds are expected to make accurate and clear disclosures of key product features and risks to investors, the central bank said. “Investors should understand the risks and rewards, and exercise due care in their selection of investment products.” In a separate response to media queries, an MAS spokesperson said the implications for jobs in Credit Suisse in Singapore were not clear at this point in time, as details of the takeover were being worked out.

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“MAS is working with the Institute of Banking and Finance to proactively address any impact on employment,” added the spokesperson.

According to media reports, Credit Suisse employs over 3,000 in Singapore.