The European Central Bank is asking lenders about indirect exposure to Credit Suisse Group AG after finding that their balance sheets show few or no holdings of the Swiss firm’s junior debt, according to people familiar with the matter.
(Bloomberg) — The European Central Bank is asking lenders about indirect exposure to Credit Suisse Group AG after finding that their balance sheets show few or no holdings of the Swiss firm’s junior debt, according to people familiar with the matter.
The watchdog is widening its approach to ask banks if they face risks from their trading clients losing money on the type of bonds set to be wiped out in the rescue of Credit Suisse, said the people, who asked not be identified as the matter is private.
An ECB spokesman declined to comment.
The hastily organized rescue of Credit Suisse over the weekend sent tremors through global markets as the Swiss regulator wrote off the firm’s so-called additional Tier 1 capital to facilitate its acquisition by UBS Group AG. The move caught some investors and politicians in other countries off guard because shareholders in the Swiss lender were given preferential treatment, contrary to the standard approach.
Read More: Pimco, Invesco Face Losses in Credit Suisse Debt Writedown
The move rendered 16 billion Swiss francs ($17.2 billion) of Credit Suisse’s AT1 debt worthless and raised questions among investors about legal certainty in Switzerland. Regulators from the neighboring European Union took the rare step of issuing a statement to remind investors that AT1 debt of banks from the bloc is senior to common equity of shareholders.
At the same time, the ECB has said the immediate risk from AT1s losses is not large.
“It’s a very limited exposure to Credit Suisse, in particular to the AT1s — very limited,” ECB President Christine Lagarde told European Union lawmakers in Brussels on Monday. “We are not talking billions, we are talking millions here.”
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