BOND HOLDERS: Credit Suisse

Posted on March 23, 2023 by Dr. David Edward Marcinko MBA MEd CMP™

AT1 BONDS = OH NO!

By Staff Reporters

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DEFINITION: Junk bonds are bonds that carry a higher risk of default than most bonds issued by corporations and governments. A bond is a debt or promise to pay investors interest payments along with the return of invested principal in exchange for buying the bond. Junk bonds represent bonds issued by companies that are financially struggling and have a high risk of defaulting or not paying their interest payments or repaying the principal to investors. Junk bonds are also called high-yield bonds since the higher yield is needed to help offset any risk of default.

CITE: https://www.r2library.com/Resource/Title/0826102549

AT1 DEFINITION: Additional Tier 1 bonds are also known as “contingent convertibles,” or “CoCos”. They were created in the wake of the 2008 financial crisis as a way for failing banks to absorb losses, making a taxpayer-funded bailout less likely. They are a risky bet — if a lender gets into trouble, this class of bonds can be quickly converted into equity, or written down completely. Because they are higher-risk, AT1s offer a higher yield than most other bonds issued by borrowers with similar credit ratings, making them very risky. If AT1s are converted into equity, this supports a bank’s balance sheet and helps it to stay afloat. They also pave the way for a “bail-in”, or a way for banks to transfer risks to investors and away from taxpayers if they get into trouble.

CITE: https://www.r2library.com/Resource/Title/0826102549

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UBS’s emergency takeover of Credit Suisse may have been necessary to avert a financial crisis, but at least one group is Yosemite Sam-level angry over how the deal shook out. Investors holding $17 billion worth of Credit Suisse’s additional tier-one bonds were shocked to discover that their $17 billion was now worth a grand total of…$0. The value of those bonds had been completely wiped out in the deal.

Additional tier-one bonds, or AT1 bonds for short, were established after the 2008 financial crisis to reduce the likelihood that taxpayers would have to bail out a failed bank. AT1s are considered riskier assets, but with that risk comes higher potential returns.

RISK: https://www.routledge.com/Risk-Management-Liability-Insurance-and-Asset-Protection-Strategies-for/Marcinko-Hetico/p/book/9781498725989

So, if these bondholders knew they were taking on risk, why are they so upset?

According to MorningBrew, mainly because, in this unusual deal, they got wiped out while shareholders didn’t. That’s not how the order of operations usually works:

  • When a write-down happens, shareholders traditionally suffer losses before bondholders get hit.
  • This deal flipped the food chain, and livid AT1 bondholders are now huddling up with lawyers about potential legal action.

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ORDER: https://www.routledge.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

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DAILY UPDATE: Credit Suisse Down While US Equities Mixed

Posted on March 9, 2023 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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  • CREDIT SUISSE:
  • Equities revenue plummeted 95% in the fourth quarter
  • CS earlier informally looked at options for unit -sources
  • CS declined comment on ‘rumors and speculation’, and
  • In the latest piece of troubling news, the beleaguered Swiss bank delayed the publication of its 2022 annual report following a “late call” from the US Securities and Exchange Commission on Wednesday evening. The SEC got in touch over revisions the bank had previously made to its cash flow statements for 2019 and 2020,

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U.S. equities finished mixed following yesterday’s rout, as investors digested a second day of testimony from Fed Chair Jerome Powell. The Chairman remained hawkish in his commentary, where he suggested rates may need to accelerate more than initially expected and may need to stay higher for longer than originally anticipated. Adding to the uncertainty, the afternoon release of the Fed’s Beige Book showed little change from the last installment.

Treasury yields were mixed with the yield curve inversion worsening, and the U.S. dollar was flat after yesterday’s rally. Crude oil prices were lower, and gold was little changed in choppy action. News on the equity front was light, as CrowdStrike topped quarterly earnings estimates and offered upbeat guidance, while UPS reiterated its full-year outlook.

The economic calendar was tilted toward labor data, as job openings dipped but remained elevated, and ADP’s private sector employment report bested forecasts ahead of Friday’s key non-farm payroll release.

Elsewhere, mortgage applications snapped a three-week losing streak, and the trade deficit came in slightly smaller than projected. Asia finished mixed and Europe also diverged, as the global markets processed the testimony from Fed Chairman Powell.

CITE: https://www.r2library.com/Resource/Title/082610254

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ORDER: https://www.routledge.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

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CREDIT Suisse?

Posted on October 3, 2022 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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Leaders at the Swiss bank tried to calm down investors and clients after concerns mounted about its weak financial position, the FT reported.

Credit Suisse’s stock price has fallen to a record low and spreads on its credit default swaps have spiked, suggesting that investors are worried about it potentially defaulting.

CEO Ulrich Körner fired off a memo assuring employees that the bank has a “strong capital base and liquidity position,” but it remains in a “critical moment” ahead of a massive overhaul.

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INVESTING: https://www.routledge.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

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