Credit Suisse 7.500% Perpetual Corp. AT1 Bonds Write-off 

Did you invest in Credit Suisse 7.500% Perpetual Corp. CoCo Bonds? 

Credit Suisse/UBS Merger leads to write off of $17.2 Billion Credit Suisse Contingent Convertible Bonds 

The Swiss Financial Market Supervisory Authority today announced that all the Credit Suisse’s 16 billion francs ($17.2 billion) of Additional Tier 1 bonds such as Credit Suisse 7.500% Perpetual Corp. will be written down to zero as part of its merger with UBS.

The AT1 bond market, also known as contingent convertible bonds, or CoCos, is valued at $275 billion. 

The Swiss regulator reportedly decided it was best for UBS to merge with Credit Suisse after great outflows of client funds. As part of the merger, all of Credit Suisse’s AT1 bonds will be written off. The Swiss regulator says the reason for the CS AT1 bonds write off is because the combined entity will be a much larger bank, with a requirement of higher capital buffers.  

The decision protects the confidence of the Swiss Banking sector and Credit Suisse, but what about investors in Credit Suisse 7.500% Perpetual Corp and other CoCo bond offerings? 

According to an article on the Credit Suisse website, “Contingent convertible bonds – better than bank equity?” published on Jan. 25, 2021, one of the portfolio managers was asked about the risks of possibility of write-offs for investors and said that “principal trigger levels on contingent capital are low… the average European bank would need to lose almost two-thirds of its capital to breach contractual triggers. In our view, this is a relatively remote scenario.”  

What are Additional Tier 1 (AT1) bonds? 

As one analyst noted in 2020, Additional Tier 1 bonds aka contingent convertibles (CoCo bonds) are high-yield investments with a hand grenade attached. Popular in Europe, Additional Tier 1 (AT1) Bonds are a cross between a stock and a bond. These CoCo bonds were designed to help banks raise capital to meet regulations after the bailouts in 2008. 

AT1 bonds are considered to be part of a bank’s Tier 1 capital, which is a measure of a bank’s financial strength and ability to absorb losses. These bonds have characteristics of both debt and equity instruments, and their terms and conditions can vary depending on the issuing institution. 

One key feature of AT1 bonds is their “contingent convertible” nature, which means that they can be converted into equity if certain trigger events occur. These triggers can be regulatory or financial in nature, such as a decline in a bank’s capital adequacy ratio or a breach of a certain threshold for its financial performance. 

Another important feature of AT1 bonds is their perpetual nature, meaning that they do not have a maturity date and can remain outstanding indefinitely, unless they are called by the issuing institution or converted into equity. 

Investors in AT1 bonds receive a higher yield than traditional debt instruments because of the increased risk associated with their contingent convertible nature. Due to its higher risks, AT1 bonds are also issued at a higher coupon in order to compensate investors for taking on more risk. 

The Risks of Investing in Credits Suisse 7.500% Perpetual Corp AT1 contingent convertible bonds 

The following is a list of risks associated with the Credit Suisse 7.500% Perpetual Corp AT1 bonds, according to Credit Suisse. 

• Credit risk: Issuers of assets held by the Fund may not pay income or repay capital when due. Part of the Fund’s investments may have considerable credit risk. 
• Event risk: In the case a trigger event occurs contingent capital is converted into equity or written down and thus may lose substantially in value. In addition, the Fund being predominantly exposed to financial institutions, adverse circumstances affecting this sector may cause material losses.  
• Liquidity risk: Assets cannot necessarily be sold at limited cost in an adequately short timeframe. Part of the Fund’s investments may be prone to limited liquidity. The Fund will endeavor to mitigate this risk by various measures. 
• Counterparty risk: Bankruptcy or insolvency of the Fund’s derivative counterparties may lead to payment or delivery default. The Sub fund will endeavor to mitigate this risk by the receipt of financial collateral given as guarantees. 
•  Political and Legal risks: Investments are exposed to changes of rules and standards applied by a specific country. This includes restrictions on currency convertibility, the imposing of taxes or controls on transactions, the limitations of property rights or other legal risks. 
• Operational risk: Deficient processes, technical failures or catastrophic events may cause losses. 

Filing a FINRA Claim to Recover Investment Losses  

The White Law Group is investigating potential securities claims involving broker dealers who may have improperly recommended Credit Suisse 7.500% Perpetual Corp. AT1 Bonds to investors as well as the following Credit Suisse CoCo bond offerings: 

• CS 7.500% Perpetual Corp (USD), Credit Suisse Group AG,  
• CS 5.625% Perpetual Corp (SGD)*, Credit Suisse Group AG,  
• CS 6.250% Perpetual Corp (USD), Credit Suisse Group AG,  
• CS 7.250% Perpetual Corp (USD), Credit Suisse Group AG,  
• CS 6.375% Perpetual Corp (USD), Credit Suisse Group AG,  
• CS 5.250% Perpetual Corp (USD), Credit Suisse Group AG,  
• CS 9.750% Perpetual Corp (USD), Credit Suisse Group AG,  
• CS 5.100% Perpetual Corp (USD), Credit Suisse Group AG,  

Broker dealers are required to perform adequate due diligence on all investment recommendations. They must ensure that each investment recommendation that is made is suitable for the investor considering the investor’s age, risk tolerance, net worth, financial needs, and investment experience.  

National Securities Attorneys 

If you invested in Credit Suisse 7.500% Perpetual Corp. AT1 Bonds with your financial advisor or broker, you may have recovery options by filing a FINRA Dispute Resolution Claim. 

FINRA Dispute Resolution is an arbitration venue for investors with claims against their brokerage firm or financial professional.  It provides investors with an opportunity to attempt to recoup their investment losses and is an alternative to filing such claims in court.    

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.     

If you have suffered investment losses in Credit Suisse 7.500% Perpetual Corp. AT1 Bonds, the White Law Group may be able to help you. Please call the offices at 888-637-5510 for a free consultation.  

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.  

For more information on The White Law Group, and its representation of investors, please visit WhiteSecuritiesLaw.com.