UBS, having subsumed Swiss Bank 25 years ago, is now absorbing Credit Suisse, creating a single Swiss banking giant. The Credit Suisse shareholders get something, the senior bondholders are protected - but that luxury does not extend down the capital stack. How banks are able to finance themselves is poised to become a lot more challenging.
To facilitate the deal and join up the numbers, the Swiss regulator Finma has ordered that about 16 billion Swiss francs ($17.3 billion) of Credit Suisse's riskiest type of debt will now be worthless. Known as Additional Tier 1 bonds, and also called contingent convertibles or CoCos, this debt can be converted into equity or written off if a bank's capital falls below a prescribed level. Owners of the Swiss firm's securities will get nothing. It was a lovely asset class while it lasted.