Swiss regulators have committed shameless expropriation. So much for the safety of Zurich

The total wipe-out of $17bn of Credit Suisse’s tier 1 bonds renders the convertible debt market in Europe almost uninvestable. 

These junior bonds ought to trump equities in market hierarchy. Clearly they do not. 

When push comes to shove, it is easier to fleece the sophisticated foreign funds that buy these instruments than to wipe out retail shareholders, in this case Swiss citizens with a political voice.

You can date the moment that the small Greek crisis turned into the larger Italian and Spanish crisis, and therefore became an existential threat to Europe’s monetary union. 

It was when Angela Merkel and Nicolas Sarkozy – walking on the beach at Deauville in October 2010 – opened the door to haircuts on sovereign debt. Investors hurried to the exits, sauve qui peut.

What is shocking is that a large and historic global bank could disintegrate in days, even if the deeper rot lies in slow-motion deposit flight over many months. Credit Suisse had larger capital buffers than most global banks. That Maginot Line so favoured by Basle regulators has proved next to useless.

Over three days last week, the Fed increased emergency loans of different kinds from almost nothing to $318bn.

In parallel, the Federal Home Loan Bank tapped the US Treasury for $250bn of liquidity to alleviate acute stress among regional and community banks.

These rescues have become necessary because the US financial system cannot withstand the pace of rate rises and quantitative tightening (QT) by the Fed.

Fed should halt its cycle of rate rises and suspend QT until the money growth recovers. 

Ambrose Evans-Pritchard Telegraph 21March  2023

Credit Suisse’s takeover causes turmoil in a $275bn bond market

Some even think it could spell the end of the Additional-Tier 1 asset class

The idea that stockholders may be left with something and coco holders with nothing is contrary to the understanding many buyers had about what they were purchasing: namely, a hybrid security somewhere between stocks and debt in the stack of capital.

Who Is Stuck With Credit Suisse’s Worthless AT1 Bonds?

Holders of AT1 bonds get nothing as shareholders get billions

A Greek official said the untry hoped to avoid another Deauville


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