LONDON (Reuters) – The Bank of England joined other European regulators on Monday in saying that shareholders of failed banks should bear losses ahead of holders of Additional Tier 1 bonds after the structure of Credit Suisse’s rescue in Switzerland angered bondholders.
Some 16 billion Swiss francs ($17.24 billion) of Credit Suisse’s AT1 debt will be written down to zero on the orders of Swiss regulators as part of the bank’s emergency takeover by UBS.
That means Credit Suisse’s AT1 bondholders appear to be left with nothing while shareholders, who typically sit below bonds in the priority ladder for repayment, will receive $3.23 billion under the UBS deal.
The BoE confirmed that in Britain, holders of common equity tier 1 instruments – shares – should expect to suffer losses before AT1 bondholders.
“Holders of such instruments should expect to be exposed to losses in resolution or insolvency in the order of their positions in this hierarchy,” the BoE said in a statement.
The British central bank said this was the approach used in its resolution this month of Silicon Valley Bank UK.
(Reporting by Kylie MacLellan, Writing by Andy Bruce; Editing by William Schomberg and Kate Holton)
