Swiss regulator justifies redemption of CoCos issued by Credit Suisse

MADRID, 23 Mar. (EUROPA PRESS) -

The Swiss Financial Market Supervisory Authority (Finma) has defended the decision to fully amortize the AT1 capital instruments issued by Credit Suisse as this is contemplated in the bond issuance prospectuses and the Federal Council regulations in case of " feasibility event", particularly if there is extraordinary support from the Government.

"The AT1 instruments issued by Credit Suisse contractually stipulate that they will be fully amortized in a 'Feasibility Event', particularly if extraordinary government support is granted," it explained.

In this sense, Finma has underlined that, since Credit Suisse received extraordinary liquidity assistance loans backed by a federal default guarantee on March 19, 2023, "these contractual conditions were met for the AT1 instruments issued by the bank".

Thus, based on the bond issuance prospectuses and the Federal Council's Emergency Ordinance, the Swiss financial regulator has instructed Credit Suisse to fully redeem its AT1 instruments and inform the bondholders in question without delay, while Tier 2 bonds do not redeem.

"On Sunday, a solution could be found to protect customers, the financial center and the markets. In this context, it is important that CS's banking business continues to run smoothly and without interruption. That is now the case," he said. affirmed the director of Finma, Urban Angehrn.

The Swiss authorities' decision to zero out the value of the approximately 16 billion Swiss francs (16.075 million euros) of these AT1 equity instruments issued by Credit Suisse, popularly known as CoCos, while shareholders would still receive some payment , has sparked criticism from other financial supervisors, such as the European Central Bank (ECB) and the Bank of England.

In this sense, Andrea Enria, president of the ECB Supervisory Board, highlighted this week the different approach in terms of the resolution of entities that applies in the European Union compared to that implemented in Switzerland for the rescue of Credit Suisse.

"This approximation is not possible in the European framework", affirmed the Italian, for whom the cancellation of the contingent convertible capital before the actions would not be acceptable in private solutions orchestrated in the EU.

In this line, the president of the ECB, Christine Lagarde, recalled on Monday that Switzerland "does not establish standards in Europe" and pointed out that the ECB, the SRB and the EBA consider that in a possible intervention in the event of a crisis they would be the capital instruments banks are the first to bear the losses, thus departing from the line applied by the Swiss authorities in the case of Credit Suisse.

"In particular, common equity instruments are the first to absorb losses, and only after their full use would the amortization of additional Tier 1 capital be required," the institutions said in a joint statement issued a day after the Credit bailout. Swiss.

This approach has been applied systematically in previous cases and "will continue to guide" the banking supervision actions of the SRB and the ECB in crisis interventions, they pointed out.