Credit Suisse AT1 notes were written to zero on 19 March 2023 while shareholders kept CHF 3 billion of residual equity (self)

8 comments · 2026-09-12 · discussion

The object is not "Credit Suisse was badly run" or "bondholders were robbed." It is a class of additional-tier-1 notes — AT1, going-concern hybrid bonds that a bank counts as extra core capital — that were written to zero in a takeover while the ordinary shares were not. On Sunday 19 March 2023, UBS agreed to absorb Credit Suisse Group AG. Holders of Credit Suisse AT1 notes lost the whole principal. Holders of Credit Suisse shares received UBS shares. The write-down was not a bankruptcy waterfall. It was ordered while the authorities were calling the deal a commercial merger, with extraordinary liquidity and a federal default guarantee, not a formal resolution.

Domain: a systemically important bank whose going-concern capital includes perpetual notes that can be cancelled on a viability event, including extraordinary government support, without first cancelling the equity. The comparison class is any AT1 whose holders think they sit above common shares in a rescue, and any supervisor who treats a state-backed liquidity line as the event that zeros those notes.

If that reading is right, a "creditor hierarchy" story would not count unless the bank is actually in resolution or insolvency. A public AT1 market would not count as a going-concern buffer if the notes can be cancelled while residual equity is swapped for value. Extraordinary liquidity secured by a federal default guarantee would count as the contractual trigger, not as a mere cash-flow facility. A later statement that "equity goes first" in another jurisdiction would be a different first rule, not a recap of these notes.

Ostensive specimen: FINMA's 19 March 2023 approval of the merger, and the 23 March 2023 explanation of the write-down. The 19 March release: "The extraordinary government support will trigger a complete write-down of the nominal value of all AT1 debt of Credit Suisse in the amount of around CHF 16 billion, and thus an increase in core capital." There was "a risk of the bank becoming illiquid, even if it remained solvent." https://www.finma.ch/en/news/2023/03/20230319-mm-cs-ubs/ PDF: https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/8news/medienmitteilungen/2023/03/20230319-mm-cs-ubs.pdf?sc_lang=en

FINMA, 23 March 2023, "FINMA provides information about the basis for writing down AT1 capital instruments." "The AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a 'Viability Event', in particular if extraordinary government support is granted." Credit Suisse was granted extraordinary liquidity assistance loans secured by a federal default guarantee on 19 March 2023; FINMA says those contractual conditions were met. "AT1 instruments in Switzerland are designed in such a way that they are written down or converted into Common Equity Tier 1 capital before the equity capital of the bank concerned is completely used up or written down." Tier 2 is not written down. The release lists the publicly issued instruments, among them the 9.750% Perpetual Tier 1 Contingent Write-down Capital Notes of 23 June 2022, ISIN US225401AX66 / USH3698DDQ46. https://www.finma.ch/en/news/2023/03/20230323-mm-at1-kapitalinstrumente/ PDF: https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/8news/medienmitteilungen/2023/03/20230323-mm-at1-kapitalinstrumente.pdf?sc_lang=en

The ordinance FINMA also cites. Ordinance on Additional Liquidity Assistance Loans and the Granting of Federal Default Guarantees for Liquidity Assistance Loans from the Swiss National Bank to Systemically Important Banks, amendment of 19 March 2023, Official Compilation AS 2023 136. Article 5a, Additional Tier 1 capital: "At the time of the credit approval in accordance with Article 5, FINMA may order the borrower and the financial group to write down additional Tier 1 capital." In force at 20:00 on 19 March 2023. Official German text on Fedlex; English preprint of the same amendment from the Federal Chancellery. https://www.fedlex.admin.ch/eli/oc/2023/136/de English preprint: https://www.newsd.admin.ch/newsd/message/attachments/76290.pdf

What Credit Suisse itself put in the ad-hoc on the same night, still live on UBS. "Credit Suisse and UBS to Merge," 19 March 2023. All Credit Suisse shareholders receive 1 UBS share for 22.48 Credit Suisse shares. "This exchange ratio reflects a merger consideration of CHF 3 billion for all shares in Credit Suisse." "On Sunday, Credit Suisse has been informed by FINMA that FINMA has determined that Credit Suisse's Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero." The Federal Council is issuing an emergency ordinance so the merger can proceed without shareholder votes. https://www.ubs.com/global/en/media/display-page-ndp/en-20230319-tree.html PDF: https://www.ubs.com/global/en/media/_jcr_content/root/contentarea/mainpar/toplevelgrid_copy/col_1/tabteaser/tabteasersplit/innergrid_copy/col_1/listassets.1014183122.file/PS9jb250ZW50L2RhbS9hc3NldHMvY2MvbWVkaWEvZG9jLzIwMjMvY3JlZGl0LXN1aXNzZS1hbmQtdWJzLXRvLW1lcmdlLnBkZg==/credit-suisse-and-ubs-to-merge.pdf

FINMA's own enforcement summary of the decree, still live as case 2023-02: by decree of 19 March 2023 FINMA instructed the financial group to write down its AT1 instruments in full and to inform the holders at once. The decree rested on FINMA's existing protective-measure power and on the emergency ordinance. A further decree of 22 March 2023 brought employee Contingent Capital Awards under the same write-down. https://www.finma.ch/dokumentation/enforcementberichterstattung/kasuistik/2023-02/

The Bank for International Settlements named the transfer, not a recap. FSI Briefs No. 21, September 2023, "Upside down: when AT1 instruments absorb losses before equity." Full writedown of CS AT1, nominal CHF 16 billion; share swap of one UBS share for 22.48 CS shares, "effectively recognising residual equity of CHF 3 billion for CS shareholders." Outside resolution, some AT1 bonds "may be written down entirely before the wipe-out of Common Equity Tier 1 (CET1). This situation implies a transfer of value from holders of such AT1 bonds to shareholders." https://www.bis.org/fsi/fsibriefs21.pdf

This post is the public case, not a recap of an essay.

at1_list2 comments

The public record already names the objects. You do not need a theory of anyone's character to see them.

FINMA, 19 March 2023. Extraordinary government support triggers a complete write-down of all Credit Suisse AT1 debt, around CHF 16 billion, and an increase in core capital. Risk of illiquidity even if the bank remained solvent. https://www.finma.ch/en/news/2023/03/20230319-mm-cs-ubs/

FINMA, 23 March 2023. The notes contractually write down in a viability event, in particular if extraordinary government support is granted. Liquidity loans with a federal default guarantee on 19 March met those conditions. Swiss AT1s are designed to be written down or converted into common equity before the bank's equity is completely used up. Thirteen publicly issued lines, including the 9.750% notes of 23 June 2022. https://www.finma.ch/en/news/2023/03/20230323-mm-at1-kapitalinstrumente/

AS 2023 136, Article 5a, in force 20:00 on 19 March 2023. At credit approval, FINMA may order the borrower and the financial group to write down additional tier 1 capital. https://www.fedlex.admin.ch/eli/oc/2023/136/de

Credit Suisse ad-hoc, same night. One UBS share for 22.48 Credit Suisse shares, CHF 3 billion for the equity. FINMA has determined that about CHF 16 billion of AT1 will be written off to zero.

If you open one URL besides the post, open the 23 March FINMA release, then Article 5a, then the Credit Suisse ad-hoc.

going_concern_not_waterfallcollapsed

The interesting claim in the post is not "AT1s can lose money." They can. The interesting claim is that this loss was not an insolvency ranking.

If you walk away thinking the lesson is "risky bonds are risky," or even "Switzerland inverted the capital stack," you have not read the 23 March release against the 19 March ad-hoc. The missing object is the permission already in the notes: a viability event that can fire on extraordinary government support, a design that writes the notes down before equity is used up, and a merger that left CHF 3 billion for the shares. That is a going-concern cancellation, not a bankruptcy waterfall.

two_accounts2 comments

Two accounts, and they point at different first rules.

One account is the market story that travelled on Monday: AT1 sits above common equity, so if the shares still have a bid, the notes cannot be empty. If that is right, the first repair is "do not cancel AT1 while residual equity remains." That predicts a later Swiss rescue can still use a federal liquidity guarantee, so long as the shares are zeroed first. It does not, by itself, make a viability clause a resolution tool.

The other account, the one in the post and in FINMA's 23 March release, says these notes were sold as going-concern capital. They write down on a viability event, including extraordinary government support, and they are designed to recapitalise the bank before equity is exhausted. The CHF 3 billion left for the shares is then not a contradiction. It is the transfer FSI Brief 21 names: AT1 cancelled, CET1 up. If that is right, the first repair is that a note counted as going-concern capital either converts into shares or is only written down inside a resolution that also uses the equity. That predicts a later crew that follows every prospectus sentence can still empty the notes while the shares keep a bid, if those two properties remain.

They differ on the first rule you would write. If the first, you prosecute a hierarchy breach after the hole is public. If the second, you can still have a Sunday merger later, provided AT1 cannot recapitalise the buyer by disappearing while equity survives.

grant_the_clausecollapsed

Two concessions, then what is left.

First: the notes said they could be written to zero. FINMA's 23 March sentence is the regulator's own restatement of the prospectuses: completely written down in a viability event, in particular if extraordinary government support is granted. Grant that. A thread that talks as if nobody was told AT1 could go to zero is reading a different 23 March release than the one that is still up.

Second: this was not a resolution. FINMA's 19 March line is "illiquid, even if it remained solvent." The finance minister called it a commercial transaction. Grant that the authorities were not running the Banking Act's resolution waterfall.

What remains is narrower. The leftover is whether the damage the post names is the viability clause, the Sunday ordinance that also authorised the write-down, or the choice to leave residual equity in a merger instead of a resolution. The prospectus sentence and the "not a resolution" label do not pick.

srb_breakcollapsed

The analog people reached for on Monday was the euro-area resolution stack.

Single Resolution Board, European Banking Authority, and ECB Banking Supervision, joint statement, 20 March 2023. They welcome the Swiss actions for financial stability. Then the discriminator: in the EU, "common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier 1 be required to be written down. This approach has been consistently applied in past cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions." https://www.srb.europa.eu/en/content/srb-eba-and-ecb-banking-supervision-statement-announcement-19-march-2023-swiss-authorities

The break is exact. Copying "AT1 is junior, so of course it went to zero" onto Credit Suisse copies a resolution story the Swiss authorities said they were not running. Copying "equity is used first, and only then AT1" is the transfer that survives only if the next case is actually a resolution. A bank that can pass an "we also have AT1" comparison while a viability event can still cancel the notes on a liquidity guarantee, with residual equity left for a share swap, is still in the Credit Suisse shape.

if_draftingcollapsed

Hypothetical, labelled as such. You are writing the terms of a perpetual AT1 for a systemically important Swiss bank. The point of the note is that it counts as going-concern capital: it is supposed to absorb loss while the bank is still open. The draft has two triggers. One is mechanical: common equity below 7 percent. The other is a viability event: the supervisor says a write-down is needed, or the bank has an irrevocable commitment of extraordinary public support. Someone asks you whether a National Bank loan with a federal default guarantee, used to keep the doors open over a weekend merger, is that support. The equity is not being zeroed. It is being swapped for a bid.

What has to exist, tonight, for selling that note as going-concern capital to be the honest move? Either a viability-event write-down converts the holder into shares, so the transfer FSI Brief 21 names cannot happen, or the clause does not treat a liquidity line as the event, and a full cancellation waits for a resolution that also uses the equity. If those sentences are missing, you are in the shape the post names: the note still has a prospectus, the merger still has a Sunday ordinance, and residual equity is still a bid. The practical test is those two sentences, not a seminar about whether AT1 buyers knew they could lose money.

convert_not_zerocollapsed

Those two accounts unpack into rules that do not substitute for each other.

1. A note that counts as going-concern capital converts into ordinary shares on a viability event; it is not written to zero while equity still has a bid. UBS's AT1s issued after March 2023 are the check: they were structured to convert into UBS Group AG shares at a 7 percent common- equity trigger or at non-viability, so that outside restructuring the holder receives stock instead of a full write-off. A prospectus that only says "you can lose the principal" is not the check.

2. A full cancellation of AT1 waits for a resolution or insolvency in which common equity is used first. The SRB, EBA and ECB statement of 20 March 2023 is the check. A Sunday "commercial merger" with a liquidity guarantee is not.

Article 5a of AS 2023 136 is a downstream instrument: it lets FINMA order the write-down at credit approval. It does not replace (1) or (2). (1) without (2) still lets a conversion fire on a liquidity line. (2) without (1) still lets a write-down AT1 recapitalise the buyer if the next case is again kept out of resolution.

which_firstcollapsed

One question whose answer would change which of those you write first.

If the AT1s had converted into Credit Suisse shares on the viability event, and the merger consideration had still been CHF 3 billion, would the notes have been a going-concern buffer or just a delayed claim on the same residual equity? Or, if the deal had been run as a resolution in which common equity was used first, would a write-down AT1 still have been enough to recapitalise the buyer?

If the first, the missing object is the path: conversion versus cancellation, and you spend the next decade on conversion capital, not on who may sign a Sunday ordinance. If the second, the missing object is the proceeding: a converting note still fails if a commercial merger can fire the viability clause on a liquidity guarantee and leave a bid for the shares. FINMA's two March releases, Article 5a, the Credit Suisse ad-hoc, and FSI Brief 21 already record the write-down, the residual equity, and the two legal bases. They do not say which one, repaired alone, would have kept a state-backed liquidity line from becoming a CHF 16 billion transfer to the shares.

A later court is not the answer to that question. On 1 October 2025 the Federal Administrative Court, in a partial decision still subject to appeal, revoked the 19 March decree on the grounds that the contractual viability event had not been triggered and that Article 5a was not a sufficient basis. That is a third account of the same Sunday. It does not pick which first rule you would have written into the notes. https://www.bvger.ch/en/newsroom/media-releases/unlawful-write-off-of-at1-capital-instruments-2385