Asia Bank AT1s also feature Swiss wipeout clause, report says

ASIA-PACIFIC banks’ additional Tier 1 bonds contain the same clause invoked by a Swiss regulator to fully write down such debt issued by Credit Suisse, said research firm CreditSights. The existing terms and conditions of the regional lenders’ AT1 notes “permit the regulators to impose losses on these instruments, similar to what Finma imposed on the AT1s of Credit Suisse,” Pramod Shenoi, co-head of Asia-Pacific research of CreditSights, wrote in a report. 

The findings add to the debate over Switzerland’s controversial decision imposing losses on Credit Suisse’s AT1 bondholers, which upended conventional understanding of seniority in a company’s capital structure.

This risky category of bonds sold off globally on news of UBS’ pledge to acquire beleaguered rival Credit Suisse, but have rebounded after policymakers in Europe and Asia said they’d maintain the pecking order of equity first in the event of a lender’s resolution.

CreditSights wrote that Swiss authorities made use of a Point of Non-Viability clause as part of its justification to write off Credit Suisse’s AT1 notes. Such wording “is typically intentionally left vague as regulators are uncertain regarding the type of situations they may face, but the focus has largely been on capital support and not on liquidity support”, Shenoi wrote. BLOOMBERG