AT1 Write-down and conversion triggers

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Part of the disposal of Credit Suisse Group AG’s (CSG) disposal to UBS has included the write-down of CSG’s additional tier 1 (AT1) instruments and resulted in AT1 investors bearing losses ahead of CSG’s common equity tier 1 (CET1) investors. Key points include the following:

  • CSG’s AT1 terms provide for write-down at the point of non-viability (as determined by the Swiss Financial Markets Supervisory Authority (FINMA)) and/or following the provision of extraordinary support, if FINMA determines that CSG would have become non-viable without that support. 
  • FINMA has confirmed that the AT1 instruments were written down at its direction in accordance with the contractual terms of the instruments themselves and powers granted to FINMA under emergency legislation passed on 19 March 2023. CSG was not placed into resolution. 
  • this should be of limited relevance to UK and EU issuers of externally issued AT1 instruments. There is no requirement under UK or EU law to include contractual triggers of the sort contained in the CSG AT1 instruments. Applicable UK and EU legislation instead provides the Bank of England and relevant EU resolution authorities with the power to write-down or convert AT1 and certain other capital instruments in those circumstances. 
  • that legislation (including the Banking Act 2009 in the UK) requires the Bank and EU resolution authorities to exercise those powers in a way that ensures that CET1 instruments bear first losses. 
  • the write-down of CSG’s AT1 instruments ahead of CET1 appears therefore to reflect a specific feature of the Swiss AT1 market and/or legal and regulatory framework, rather than an inherent feature of AT1 instruments as an asset class. 

Please download our briefing for further analysis on these points.