Bondholders Took A Hit Following Credit Suisse Takeover


The rescue of Credit Suisse Group AG caused mixed reactions in the markets. Stocks of European banks listed on Asian stock exchanges are trading under pressure at the beginning of the week. This is explained by the plummeting cost of additional tier-1 bonds.

Demonstrating the biggest drop in almost six months, HSBC Holdings Plc’s securities lost 6.6% in Hong Kong trading. Quotes of the recently issued AT1 bonds lost more than 5 cents.

Credit Suisse AT1 debt was written down to zero as part of the rescue program for the struggling Swiss bank. Investors are now wondering whether bonds are actually the assets that can ensure strong protection in times of crisis.

This move can have two-way implications. To put that in context, HSBC and similar banks may face a loss of clients’ confidence in bonds and may have to seek new sources of capital.

Experts emphasize that the deal with Credit Suisse will affect the bond and stock market. That being said, it is yet unknown how significant the risk will be for international and regional banks.

Bondholders suffered tangible losses following the Credit Suisse acquisition by UBS. And even though the deal will help strengthen and stabilize the financial system, the write-down of the AT1 bonds may "spook holders of these types of securities at other banks."

In its Monday statement, the Hong Kong Monetary Authority mentioned that the risks associated with the Credit Suisse takeover will still be minor for the local banking sector and the market.

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