Hedge Funds That Bet on Credit Suisse Rescue Face Uneven Results

Credit Suisse came under severe pressure last week as turmoil from the failure of California-based Silicon Valley Bank spread across the Atlantic.

On Sunday, the Swiss Financial Market Supervisory Authority, or Finma, approved a deal for UBS to take over its smaller rival. “The transaction and the measures taken will ensure stability for the bank’s customers and for the financial center,” said a statement from Finma.

It said that the AT1 bonds would be wiped out as part of the deal, to add roughly $16 billion of equity to support UBS’s takeover.

That raised eyebrows among some investors because it upended the normal order in which holders of different assets of a company expect to be paid in bankruptcy. Stock investors are at the bottom of that repayment list and usually lose all their money ahead of other investors.

However, in this instance, regulators chose to trigger the conversion of the AT1 bonds to equity capital to help the bank, while still offering Credit Suisse shareholders one UBS share for every 22.48 Credit Suisse shares held.

“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” said Colm Kelleher, the chairman of UBS. “We have structured a transaction which will preserve the value left in the business while limiting our downside exposure.”

Article source: https://www.nytimes.com/2023/03/19/business/credit-suisse-investors-hedge-funds.html