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Credit Suisse Group AG’s riskiest bonds cut their advance on Sunday amid concerns that Swiss authorities may have to nationalize the bank if a deal with UBS Group AG falls through. If that happens, the bonds will likely be wiped out as part of the bailout.
Bonds, including the riskiest portion of the capital stack, Supplementary Tier 1 notes, were quoted at prices ranging from the high 30s to mid-50s cents on the dollar, down about 20 cents from about an hour earlier, according to people with knowledge of the matter, asking not to be named because quotes in the over-the-counter market are private. They are still higher than their close on Friday, when prices hovered around the 20s and 30s.
It’s a quick turnaround for the narrative, which had shifted positively on Sunday amid optimism that UBS’ offer of up to $1 billion would have avoided a scenario in which bondholders would suffer penalty losses on some of Credit Suisse’s riskiest bonds.
The securities, introduced after the global financial crisis, are designed to help banks raise capital to meet regulations designed to avoid bankruptcy. They can be written off if a bank’s capital level falls below a certain level. In the case of Credit Suisse, its Common Equity Tier 1 should fall below 7% of its risk-weighted assets.
Swiss authorities are now considering taking over the bank outright or retaining a significant equity stake if the UBS takeover falls through, although an agreement has not yet been reached. Reuters reported on Sunday afternoon that Swiss authorities are looking into imposing losses on bondholders as part of a bailout plan.
Several banks, including Goldman Sachs, Morgan Stanley and Jefferies Financial Group, kept their bond sales and trading desks open for Credit Suisse bonds over the weekend, a rare occurrence except during times of stress.
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