The value of Credit Suisse’s additional tier 1 (AT1) bonds, a type of contingent convertible bonds that are thought to be the riskiest type of debt banks can use, fell as low as 1 cent on the dollar after the bank announced that 16 billion Swiss francs worth of the debt will be written down to zero, sending the company’s shares plummeting by nearly 62% in Swiss premarket trading to around 0.61 Swiss francs ($0.6578).
It was revealed on Sunday, to the chagrin of creditors, that the debt is being written down on the directive of the Swiss regulator as part of its rescue merger with UBS.
According to Tradeweb pricing, a $1 billion AT1 bond with a 4.5% coupon was offered for as little as 1 cent on the dollar.
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, predicted that the problem would be contained in the coming trading hours.
“Theoretically, there is no reason for the Credit Suisse crisis to worsen, as what caused the most recent earthquake at Credit Suisse was a confidence crisis, which doesn’t affect UBS, a bank that is not involved in the turmoil and has plenty of liquidity as well as government and Swiss National Bank guarantees.”
In a deal arranged on Sunday by Swiss authorities, UBS will acquire Credit Suisse for 3 billion Swiss francs ($3.23 billion) and take on up to $5.4 billion in losses.
Credit Suisse’s market value as of Friday’s end was $8 billion. It was only six months ago that it was valued at $13 billion.
In contrast, UBS stock fell nearly 5% in premarket dealing to about 15.81 francs.
$1 is equal to 0.9274 Swiss francs.