FRANKFURT (Reuters) – The European Central Financial institution’s chief supervisor on Thursday supported creating international requirements for convertible bonds that had been worn out as a part of Credit score Suisse’s rescue by rival UBS earlier this yr.
Holders of Credit score Suisse’s Further Tier 1 bonds with a notional worth of 16 billion Swiss francs ($18.1 billion) misplaced their entire funding whereas stockholders obtained some shares in UBS – a differential remedy that triggered lawsuits and despatched shockwaves by means of monetary markets.
ECB chief supervisor Andrea Enria backed the choice by Swiss authorities, which mirrored clauses enshrined in native bonds, however urged international standard-setters on the Basel Committee on Banking Supervision to place some order on this market.
“It might be good if the Basel committee might in future assume additional on some standardization of contracts in these areas,” Enria informed the annual convention of the European Systemic Danger Board.
“Including some widespread options, I believe, can be helpful to keep away from that there’s a kind of contagion between completely different devices and that everyone understands how they work in instances of stress.”
Talking on the identical panel, the Basel Committee’s chairman Pablo Hernández de Cos stated the difficulty was “on the listing”.
The Basel Committee stated in a report final month it might evaluation the options of AT1 bonds, together with the “loss-absorbing hierarchy”.
Shares are typically thought to be junior to bonds, that means they undergo losses first in a disaster. However Credit score Suisse’s bonds contained a clause permitting authorities the write down these bonds with out winding down the financial institution.
This clause shouldn’t be a function in bonds issued by European Union banks and the ECB has made clear that it might impose losses on shareholders first.
($1 = 0.8856 Swiss francs)
(Reporting By Francesco Canepa and Balazs Koranyi; Modifying by Toby Chopra)
