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Credit Suisse collapse rumours

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waterbottle said:
Contagion is already here...

The mid sized US banks are screaming for more support

finance.yahoo.com

US banking crisis: Close to 190 banks could collapse, according to study

The Fed's aggressive interest rate hikes have eroded the value of bank assets such as government bonds and mortgage-backed securities.
finance.yahoo.com finance.yahoo.com
Click to expand...
so nobody understood Basel III ???

and the 'unquestionably strong' narrative ROFLMAO ( which most never got close to )

of course they are screaming for liquidity , fraction reserve lending ( not the lending of accumulated profits ) is the main game

the collateral used on that leveraged lending is junk in a forced sale scenario

who wants to buy 10 year US Treasuries paying an interest-rate of less than 2% (p.a. ) at anything close to face value . ( especially when you know the seller is desperate )
 
What many do not realise is that investing is like throwing a dart at a board.

1679443317671.png

Saudi Crown Prince Mohammed bin Salman last year directed government-backed Saudi National Bank to make a $1.5 billion investment in Credit Suisse that his financial advisers harbored doubts about.

Ole Prince Mo dropped $1.5b on his throw.

gg
 
Some of the screams coming from the Credit Suisse meltdown are from institutions that held some of the $17Billion in AT1 notes that were wiped out when Credit Suisse had to be taken over by UBS. Do they have point ? Should these bonds be protected before shareholders ?

Turns out , if one read the documentation, they were not protected. The organisations that invested in these bonds either didn't read the paperwork, or didn't care.

AT1 Bonds: when to abandon your fund manager​

It is not my fault... excuses for the deluded​


........The issue of the day: Credit Suisse alternative Tier 1 capital notes​

​

This leads me to the issue of the day - the Swiss financial regulator’s (FINMA’s) decision to simply cancel (“write-down”) about $17 billion in Credit Suisse Additional Tier 1 bonds (the so-called AT1s).

Now had I had a cursory look at the AT1s I would have thought that they were traditional bank preferred shares - that is they ranked ahead of common equity. I might have even traded them on that basis.

Fortunately I did not - because if I had I would have been wrong.

These were not ordinary preference shares ranking ahead of common equity. They were fixed income instruments that in times of stress ranked behind common equity.

Indeed I had never really ever considered the possibility of such an instrument - but that was only because I never read the documents.

The documents were not hard to find. They were on Credit Suisse’s website.

The document (which I have preserved here) makes it’s unusual nature right up-front. The Credit Suisse page linked above refers to these in bold letters as “Low-Trigger Capital Instruments”.

johnhempton.substack.com

AT1 Bonds: when to abandon your fund manager

It is not my fault... excuses for the deluded
johnhempton.substack.com johnhempton.substack.com

substack.com

John Hempton | Substack

Fund manager from Australia. Opinions are my own - including the (many) errors.
substack.com substack.com
 
So if you bought Additional Tier One bonds then you are ranked below shareholders. Must have been a lot of investors burnt. You have to read the fine print.
 
Garpal Gumnut said:
What many do not realise is that investing is like throwing a dart at a board.

View attachment 154794

Saudi Crown Prince Mohammed bin Salman last year directed government-backed Saudi National Bank to make a $1.5 billion investment in Credit Suisse that his financial advisers harbored doubts about.

Ole Prince Mo dropped $1.5b on his throw.

gg
Click to expand...
well that will have contagion , i would expect the Saudi National Bank to claw back those loses ( and interest ) one barrel at a time

( and be super-cautious investing in Europe in the future)

especially as the main energy competitor is heavily sanctioned by some .
 
basilio said:
Some of the screams coming from the Credit Suisse meltdown are from institutions that held some of the $17Billion in AT1 notes that were wiped out when Credit Suisse had to be taken over by UBS. Do they have point ? Should these bonds be protected before shareholders ?

Turns out , if one read the documentation, they were not protected. The organisations that invested in these bonds either didn't read the paperwork, or didn't care.

AT1 Bonds: when to abandon your fund manager​

It is not my fault... excuses for the deluded​


........The issue of the day: Credit Suisse alternative Tier 1 capital notes​

​

This leads me to the issue of the day - the Swiss financial regulator’s (FINMA’s) decision to simply cancel (“write-down”) about $17 billion in Credit Suisse Additional Tier 1 bonds (the so-called AT1s).

Now had I had a cursory look at the AT1s I would have thought that they were traditional bank preferred shares - that is they ranked ahead of common equity. I might have even traded them on that basis.

Fortunately I did not - because if I had I would have been wrong.

These were not ordinary preference shares ranking ahead of common equity. They were fixed income instruments that in times of stress ranked behind common equity.

Indeed I had never really ever considered the possibility of such an instrument - but that was only because I never read the documents.

The documents were not hard to find. They were on Credit Suisse’s website.

The document (which I have preserved here) makes it’s unusual nature right up-front. The Credit Suisse page linked above refers to these in bold letters as “Low-Trigger Capital Instruments”.

johnhempton.substack.com

AT1 Bonds: when to abandon your fund manager

It is not my fault... excuses for the deluded
johnhempton.substack.com johnhempton.substack.com

substack.com

John Hempton | Substack

Fund manager from Australia. Opinions are my own - including the (many) errors.
substack.com substack.com
Click to expand...
there are apparently some legal challenges to that

stayed tuned

CS gets away with it , but Basel III AT1s become less desirable than 2007 CDOs

or Europe decides to save itself from a capital drought ( because no-one sensible would willingly invest in European Senior debt at those crappy rates )

BTW i READ those documents BEFORE i buy , which is why i have avoided such instruments since 2017 ( i would want at least 12% interest on the face value )
 
Knobby22 said:
So if you bought Additional Tier One bonds then you are ranked below shareholders. Must have been a lot of investors burnt. You have to read the fine print.
Click to expand...
Only in the case of Swiss AT1 which had the specific clause ranking them lower, it would seem. Rest if Europe, no.

It's amazing that so-called professionals missed that point.
 
Knobby22 said:
So if you bought Additional Tier One bonds then you are ranked below shareholders. Must have been a lot of investors burnt. You have to read the fine print.
Click to expand...
ah ! but the implication was in a crisis those bonds would be converted into shares at a prescribed rate ( unless special conditions were applied ) still probably only 5 cents in the dollar but a tiny chance of the capital growing back over time

but Greece , Cyprus , and now Switzerland .. many will consider Europe an investing wasteland ( not bad for around 10 years of investing history )

i will eagerly await to see who the burn victims are , i suspect pension funds , some insurance companies , some ETF bond funds ( after all it is very hard for the retail investor to buy these style of bonds directly , in recent years , especially Australian ones , i believe you have to qualify as a 'sophisticated investor ' first just to get the prospectus )
 
  • Big money managers such as Pacific Investment Management and Invesco were among the largest holders of AT1 bonds, owning around $US807 million and $US370 million, respectively.
  • BlackRock had about $US113 million at the end of February, although the firm has reduced some of its holdings recently.
  • Elsewhere, funds managed by Lazard Frères Gestion and GAM Investments were also exposed.
  • In 2013, Qatar converted more than $US4.5 billion of a special type of debt into AT1 bonds, although it is unknown whether the Gulf state still owned any of them.
  • Credit Suisse’s own employees... For years, senior executives were paid in part in AT1 notes, Semafor reported. The news outlet did not offer concrete figures.
  • The ultrarich: Wealthy individuals as well as small to mid-sized family offices in Hong Kong and Singapore have gobbled them up, and a lot of them are “in shock,” The Financial Times reported
 
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Dona Ferentes said:
Only in the case of Swiss AT1 which had the specific clause ranking them lower, it would seem. Rest if Europe, no.

It's amazing that so-called professionals missed that point.
Click to expand...
annoying , but not amazing , they are busy busy ( greedy ) people and that clause was several pages in , when i was investing in bonds/hybrids i would skim through first looking for the basics , THEN if interested go back and study it all ( and ALWAYS willing to seek professional advice if i had questions )

the rest of Europe ?? well i suspect some folks will be scouring those tomes of documentation very closely , say Spanish , Italian , Portuguese bond buyers ... after all Switzerland used to have a reputation ( despite the UBS bailout in the GFC ) ( you know , secret , secure , sound )

check out the local Tier 1 offerings by banks , most of them rank very low ( not first into the trash can , but certainly not the last either ) also please note AT1s were created to fill Basel III capital adequacy requirements .

fun fact
en.wikipedia.org

Basel - Wikipedia

en.wikipedia.org en.wikipedia.org
 
Dona Ferentes said:
  • Big money managers such as Pacific Investment Management and Invesco were among the largest holders of AT1 bonds, owning around $US807 million and $US370 million, respectively.
  • BlackRock had about $US113 million at the end of February, although the firm has reduced some of its holdings recently.
  • Elsewhere, funds managed by Lazard Frères Gestion and GAM Investments were also exposed.
  • In 2013, Qatar converted more than $US4.5 billion of a special type of debt into AT1 bonds, although it is unknown whether the Gulf state still owned any of them.
  • Credit Suisse’s own employees... For years, senior executives were paid in part in AT1 notes, Semafor reported. The news outlet did not offer concrete figures.
  • The ultrarich: Wealthy individuals as well as small to mid-sized family offices in Hong Kong and Singapore have gobbled them up, and a lot of them are “in shock,” The Financial Times reported
Click to expand...
Thats what I like to see, some actual figures and stats rather than just general statements.
As long as those figures come from a source that can be trusted.
mick
 
for those wondering how so many professionals got caught

compare an AT1 prospectus to an ETF product disclosure

you wade through dozens of them , in most cases they are almost identical with only the tiniest of differences , but when times get tough those tiny differences matter , so you do what i do skim for the basic figures , go for a deep dive .. and the eyes glaze over ( because this is the sixth or seventh this week )

now a clever guy/gal doing this would run the different offerings through a computer and run a program called diff ( there are alternatives ) and visibly highlight the differences between similar texts ( it only has to save you once , to be a bonus )

but of course most of the burnt investors will still be very disappointed , no matter how you roll out the excuses
 

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