Credit Suisse’s takeover causes turmoil in a $275bn bond market

The hastilyubsatatat arranged of Credit Suisse, a bank, by , its great rival, is reverberating through financial markets. Investors are scrambling to understand the deal and identify knock-on consequences. One is already clear. The decision to write down around SFr16bn ($17bn) in Additional-Tier 1 (1) bonds issued by Credit Suisse—while stockholders merely suffered enormous losses—is causing fury and pain elsewhere. Some observers fear it could even spell the end of the asset class.1 securities are a form of “contingent-convertible” (coco) bonds, part of the toolkit created after the global financial crisis of 2007-09 to prevent future bail-outs. In good times, they act like relatively high-yield bonds. When things and trigger points are reached—such as a bank’s capital falling below certain levels relative to assets—the bonds convert to equity or are written down, cutting the bank’s debt and absorbing losses. In a post-collapse pecking order, 1 bondholders should come between senior bondholders, who have a right to payouts first, and stockholders, who in theory take first losses.