Bank shares fall despite Credit Suisse bailout

Shares of the urgently sold Credit Suisse fell 64 percent to 0.67 Swiss francs, below the 0.76 Swiss franc deal price with UBS.

Shares of UBS fell close to 13 percent at the opening today after it bought rival Credit Suisse for 3 billion Swiss francs ($3.23 billion) yesterday.



It was noteworthy that German banks Deutsche Bank and Commerzbank shares also experienced high losses.

Deutsche Bank, one of the largest banks in Germany, headquartered in Frankfurt, lost 8.5 percent at the beginning of the day, while Commerzbank lost 6.5 percent.

Analysts attributed the decline in bank shares primarily to the write-off of an additional tier 1 (AT1) bond, a subordinated debt instrument with a face value of 16 billion francs ($17.3 billion) in the deal between UBS and Credit Suisse.

AT1 bonds were launched in Europe to help absorb shocks from the bank crash after the 2008 global financial crisis.

These bonds were intended to provide an additional buffer so that banks would not collapse so quickly in times of crisis.

It is aimed to support the bank’s balance sheet and continue its activities by reflecting permanent losses to bond investors or converting them into shares as a result of the bank’s falling below the previously determined capital adequacy ratio.


It is also noteworthy that the impairment in Credit Suisse is the largest impairment on this type of bond to date.

Overall, the AT-1 bond market in Europe is known to be around 250 billion euros.

So far, AT-1 bonds have only been wiped out once in Europe. In 2017, the Spanish Bank of Santander was wiped out when it bought its bankrupt rival, Banco Popular, for 1 euro.

Analysts point out that the merger of UBS and Credit Suisse has removed concerns that the crisis will spread to other banks, while in the medium and long term, the bailout will lead to higher refinancing costs for banks.

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