Financial Research Says Asia Bank AT1 Bonds Also Feature Swiss Wipeout Clause

Private financial research said additional Tier 1 bonds owned by Asian banks will be subject to the same condition imposed by a Swiss regulator to entirely write down such debt issued by Credit Suisse, according to Bloomberg on Friday.

Pramod Shenoi, co-head of Asia Pacific research at CreditSights, noted in a report that the current terms and conditions of the AT1 notes of the regional lenders “permit the regulators to impose losses on these instruments,” similar to the losses imposed by Swiss regulator FINMA on the AT1s of Credit Suisse.

Following Credit Suisse’s acquisition by rival bank UBS, FINMA announced on Sunday that the AT1s, commonly seen as relatively risky assets, will be written down to zero, while stock owners will receive dividends as part of the takeover, upsetting bondholders.

According to CreditSights, the Swiss government’s decision to write off Credit Suisse’s AT1 notes was justified in part by a Point of Non-Viability clause. Since “regulators are uncertain of the type of situations they may face,” Shenoi noted, “such language is typically purposefully left imprecise.” The focus, however, has been on capital support, rather than liquidity support.