Goldman Readies Claims Trading for Wiped Out Credit Suisse Debt

(Bloomberg) - Goldman Sachs Group Inc. traders were preparing to take bids on claims against Credit Suisse Group AG’s riskiest bonds after the takeover of the Swiss lender wiped out about 16 billion Swiss francs ($17.3 billion) of the debt.

Clients were told in a message late Sunday that the New York-based bank would soon start trading claims in the so-called additional tier 1 bonds, or AT1s, according to people with knowledge of the matter. A representative for Goldman declined to comment.

Investors looking to buy such claims would be making a bet that they can ultimately recover some value, potentially through litigation.

The Swiss financial regulator known as Finma said on Sunday that Credit Suisse’s takeover by UBS Group AG would trigger a “complete write-down” of the AT1 debt, a type of security introduced after the global financial crisis that’s designed to take losses if a bank’s capital ratios drop below a certain level.

Despite that embedded risk, Finma’s move provoked a furious response from holders of the debt because shareholders — who sit lower in the pecking order in the bank’s capital structure — are set to receive 3 billion francs in the UBS deal.

No prices had been circulated as of Sunday night for claims on Credit Suisse AT1s, although clients were told that they would likely be in the single digits, said the people, who asked not to be identified because the communications were private.

In a rare weekend trading session, the value of Credit Suisse’s AT1 debt whipsawed ahead of the UBS deal announcement, oscillating between 20 cents on the dollar to as high as 70 cents as the deal was finalized. Credit Suisse’s AT1 bonds denominated in Swiss francs were indicated at 2 cents in early trading on Monday, according to data compiled by Bloomberg.

AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail. They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business.

By Reshmi Basu and Carmen Arroyo
With assistance from Luca Casiraghi


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