FRANKFURT, Nov 16 (Reuters) – The European Central Bank’s chief supervisor on Thursday backed the creation of a global standard for convertible bonds, which were snapped up as part of the rescue of Credit Suisse by rival UBS earlier this year. .
Holders of Credit Suisse’s additional Tier 1 bonds, with an estimated value of 16 billion Swiss francs ($18.1 billion), lost their entire investment, while stockholders received some shares in UBS – a different behavior that sparked lawsuits and an uproar in the financial markets. Sent a shock wave.
ECB chief supervisor Andrea Enria supported the Swiss authorities’ decision, which reflects the conditions underlying local bonds, but urged global standard-setters on the Basel Committee on Banking Supervision to inject some order into this market.
“It would be good if the Basel Committee could think ahead in the future on some standardization of contracts in these areas,” Enria said at the annual conference of the European Systemic Risk Board.
“I think adding some common features would be beneficial to avoid that there is a kind of transition between different tools and that everyone understands how they work in times of stress.”
Speaking on the same panel, Basel Committee chair Pablo Hernandez de Cos said the issue was “on the list”.
The Basel Committee said in a report last month that it would review the characteristics of AT1 bonds, including the “loss-absorbing hierarchy.”
Stocks are generally considered junior to bonds, meaning they are the first to suffer losses in a crisis. But Credit Suisse’s bonds included a clause that allowed officials to write down those bonds without closing the bank.
This clause is not a feature in bonds issued by EU banks and the ECB has made clear that it will pass losses on to shareholders first. ($1 = 0.8856 Swiss francs) (Reporting by Francesco Canepa and Balazs Koranyi; Editing by Toby Chopra)