Credit Suisse Crisis Averted Through UBS Takeover Amid AT1 Bond Controversy and Escalating Inflation Fears

FINMA clarifies basis for AT1 bonds complete write-down as Swiss National Bank intervenes to halt banking crisis

The Swiss Financial Market Supervisory Authority (FINMA) has provided information on the basis for writing down Credit Suisse's AT1 capital instruments, following numerous inquiries. The decision to write down these instruments came after Credit Suisse received extraordinary liquidity assistance loans secured by a federal default guarantee on 19 March 2023, constituting a "viability event." As a result, FINMA instructed Credit Suisse to write down the AT1 bonds completely and inform the bondholders concerned without delay.

The Swiss National Bank (SNB) provided liquidity assistance to Credit Suisse in the form of a loan of up to 50 billion Swiss francs, as the lender faced a crisis before its emergency sale to UBS. The Swiss federal government enacted an emergency ordinance guaranteeing the additional liquidity assistance from the SNB to Credit Suisse and authorizing FINMA to order the borrower and the financial group to write down Additional Tier 1 capital.

Switzerland’s banking crisis has been halted, according to the SNB, which hiked interest rates for the fourth time to contain inflation. The SNB, together with the Swiss government and FINMA, orchestrated Credit Suisse's emergency takeover by UBS on Sunday to prevent the collapse of the country's second-biggest bank. Despite the rescue, the repercussions for Switzerland are significant, with potential losses for Swiss taxpayers and a tarnished reputation among some investors.

FINMA defended its actions, stating they were based on the contractual terms of the bonds and an emergency law adopted by the Swiss government on Sunday. The terms of Credit Suisse's AT1 bonds stated that they would be completely written down in a "viability event," particularly if extraordinary government support was granted.