Credit Suisse's rescue had a sting in its tail for the banking crisis. Here's what you need to know about AT1 bonds.
AT1 bonds, which are also known as contingent convertible bonds or CoCos, emerged as a new type of fixed income asset after the 2008 financial crisis.
AT1s are also hybrid bonds – which means that the bank can choose to convert them into shares if its financial health falls below a certain level. This serves to prop up the bank's capital levels and reduce its debt in times of crisis.FINMA said Sunday that it would write the value of Credit Suisse's AT1s down to zero, effectively wiping out assets worth 16 trillion Swiss franc overnight.
The litigation firm Quinn Emanuel said Monday that it had put together a team of lawyers and was approaching AT1 holders about potentially pursuing legal action over FINMA's move. The closest parallel to Sunday's move by FINMA came when Spain's Banco Popular collapsed in 2017, although shareholders and AT1 bondholders were both wiped out as part of its rescue by rivalA group of CoCo bondholders then instructed Quinn Emanuel to pursue legal action on their behalf, although they failed in their attempt to sue the regulator.
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