Credit Suisse's $17 billion bond offering left investors scrambling

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New Delhi: Credit Suisse Group AG's hasty merger with UBS Group will result in a massive erosion of the bank's risky bonds. The merger will fully liquidate bondholders' approximately 16 billion Swiss francs, or $17.30 billion, of additional Tier 1 bonds, Switzerland's financial regulator Finma said in a statement.

In rupees, this number goes up to 1,42,496 crores. The situation has raised concerns in Europe's $275 billion AT1 bond market. With this, after the equity-share markets of the world, now a big upheaval has started in the global bond markets.

Switzerland's largest bank UBS has announced to take over Credit Suisse for $3.25 billion. Following the takeover, the AT1 (Additional Tier 1) bonds will be depreciated to nil, Credis Swizz said. In the parlance of the stock market, these 17.30 billion dollar bonds of the bondholders have now become paper money.

AT1 bonds also known as contingent convertible bonds were introduced after the 2008 financial crisis. These bonds were introduced with the intention of mitigating banking risk and diverting it to bondholders. A report said that due to this loss, individual and institutional investors would sell such securities of other banks in Europe.

There were gaps in the AT1 market only last week. Deuce Bank's 6 percent $1.25 billion AT1 bond fell 10 percent to 79 cents, while UBS's 7 percent $2.50 billion bond fell 5 percent to 95.50 cents.

There are approximately $254 billion worth of risky bonds outstanding in the market. AT1 or risk bonds usually pay higher interest because, if a company goes into trouble, they can be converted into equities or written down (returned) so that the company's liability is in crisis. falls, said an analyst. At a time when benchmark rates were low over the past decade, high interest rates made AT1 bonds attractive to investors.

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