Credit Suisse’s $17B of Risky Bonds Are Now Worthless

I was initially surprised about this because AT1 notes are supposed to rank higher than equity. It seems that almost no one saw this coming (CS AT1 bonds traded higher this weekend before the write-down announcement), and traders presumed that bondholders should be made whole if equity holders get something.

However then I looked at the information memorandum of these AT1 bonds (e.g. https://www.credit-suisse.com/media/assets/about-us/docs/inv...). Credit Suisse titled their issues as "Perpetual Tier 1 Contingent Write-down Capital Notes". Note that it's "contingent write-down" rather than the more typical "contingent convertible". The IM also doesn't contain an explicit conversion price or conditions.

Almost everyone would call this a "CoCo bond", even though its terms are exceedingly clear -- if CET1 falls below 7%, a Contingency Event, which is a Write-down Event, occurs, and "the full principal amount of the Notes will automatically and permanently be written-down to zero on the Write-down Date." In other IM issued by other banks I've seen, usually such event is followed by a mandatory conversion to ordinary shares rather than an immediate write-down. I wonder if this nuance was fully considered and priced in the trading of such instruments.

Re: Credit Suisse’s $17B of Risky Bonds Are Now Worthless

#5

Post by justinzollars » Sun, Mar 19, 2023, 10:34 PM UTC

codetrotter wrote: post #3

And they wonder why we want to replace the traditional banking system. Here’s a hint: it’s not got anything to do with either “metaverse” bs nor with silly “NFT” JPEGs. Read the original Bitcoin whitepaper. https://bitcoin.org/bitcoin.pdf

The competing system is BRICS + Saudi Arabia, Egypt, Iran, Turkey and Pakistan. They will probably transact in gold - certainly not bitcoin. In the West, if there is a collapse of our system, they will make bitcoin illegal. I just don't see it as anything other than a short term speculation.

Re: Credit Suisse’s $17B of Risky Bonds Are Now Worthless

#6

Post by tuyguntn » Sun, Mar 19, 2023, 10:36 PM UTC

codetrotter wrote: post #3

And they wonder why we want to replace the traditional banking system. Here’s a hint: it’s not got anything to do with either “metaverse” bs nor with silly “NFT” JPEGs. Read the original Bitcoin whitepaper. https://bitcoin.org/bitcoin.pdf

issues are coming up mostly because of interest based economy and multitude of instruments built on top of it.

IMHO, even if whole banking system will be replaced with bitcoin, interest based economy will be built on top of it and same instruments will be built with similar level of issues

Re: Credit Suisse’s $17B of Risky Bonds Are Now Worthless

#7

Post by pfannkuchen » Sun, Mar 19, 2023, 10:38 PM UTC

tuyguntn wrote: post #6

codetrotter wrote: post #3

And they wonder why we want to replace the traditional banking system. Here’s a hint: it’s not got anything to do with either “metaverse” bs nor with silly “NFT” JPEGs. Read the original Bitcoin whitepaper. https://bitcoin.org/bitcoin.pdf

issues are coming up mostly because of interest based economy and multitude of instruments built on top of it. IMHO, even if whole banking system will be replaced with bitcoin, interest based economy will be built on top of it and same instruments will be built with similar level of issues

The difference is that a central authority doesn’t control the size of the bitcoin supply. It wouldn’t be a utopia, it would only fix a certain class of problems we have today.

Re: Credit Suisse’s $17B of Risky Bonds Are Now Worthless

#8

Post by r_hoods_ghost » Sun, Mar 19, 2023, 10:43 PM UTC

pfannkuchen wrote: post #7

tuyguntn wrote: post #6

Earlier quoted context omitted.

issues are coming up mostly because of interest based economy and multitude of instruments built on top of it. IMHO, even if whole banking system will be replaced with bitcoin, interest based economy will be built on top of it and same instruments will be built with similar level of issues

The difference is that a central authority doesn’t control the size of the bitcoin supply. It wouldn’t be a utopia, it would only fix a certain class of problems we have today.

A central authority doesn't control the size of the money supply in our current economy either, as the vast majority of money is created by private banks and other institutions issuing loans.

Re: Credit Suisse’s $17B of Risky Bonds Are Now Worthless

#9

Post by cpncrunch » Sun, Mar 19, 2023, 10:52 PM UTC

The Reuters article has more background information, and isn't behind a paywall:

https://www.reuters.com/business/finance/credit-suisse-write...

Re: Credit Suisse’s $17B of Risky Bonds Are Now Worthless

#10

Post by georgeplusplus » Sun, Mar 19, 2023, 10:53 PM UTC

justinzollars wrote: post #5

codetrotter wrote: post #3

And they wonder why we want to replace the traditional banking system. Here’s a hint: it’s not got anything to do with either “metaverse” bs nor with silly “NFT” JPEGs. Read the original Bitcoin whitepaper. https://bitcoin.org/bitcoin.pdf

The competing system is BRICS + Saudi Arabia, Egypt, Iran, Turkey and Pakistan. They will probably transact in gold - certainly not bitcoin. In the West, if there is a collapse of our system, they will make bitcoin illegal. I just don't see it as anything other than a short term speculation.

The problems with the gold standard is we had one and everyone lied about how much gold they had, Causing the lost decade in the 70s/80s.

Maybe BRICS will propose a solution that uses Blockchain to verify gold ledgers.