Canada’s banking regulator said Monday that holders of Tier 1 (AT1) and Tier 2 (AT2) debt securities will get more favorable treatment if a bank gets into trouble.
The Office of the Superintendent of Financial Institutions has tightened its guidelines following a bailout from Swiss creditor Credit Suisse that appeared to leave nothing for holders of the bank’s second-tier bonds.
If a bank reaches the point of “unviability”, the bank’s ordinary shareholders will be the first to suffer losses, the Canadian regulator has said.
Credit Suisse said on Sunday that 16 billion Swiss francs ($17.22 billion) of its AT1 debt would be reduced to zero on the orders of the Swiss regulator as part of its bailout merger with UBS Group AG.
This means that AT1 bondholders appear to have received nothing, while shareholders, who generally rank below bondholders in terms of payout in the event of a company’s bankruptcy, will receive 3.23 billion. dollars under the agreement.
Law firm Quinn Emanuel Urquhart & Sullivan said on Monday that Swiss, US and UK lawyers were talking to a number of Credit Suisse AT1 bondholders regarding possible legal action.
($1 = 0.9285 Swiss francs)
