Khan Capital | March 2023
Key Takeaways
- UBS acquired Credit Suisse for CHF 3 billion, while FINMA ordered the complete write-down of CHF 16 billion in AT1 bonds.
- The AT1 write-down inverted the creditor hierarchy, with Goldman Sachs calling it “the largest loss ever inflicted on AT1 investors since the birth of the asset class.”
- The Bank of England and EBA immediately distanced themselves from FINMA’s approach, confirming equity would absorb losses before AT1 in their jurisdictions.
- In October 2025, the Swiss Federal Administrative Court ruled the AT1 write-down unlawful, finding the emergency decree unconstitutional.
- The precedent demonstrates that in a genuine systemic crisis, governments will override contractual terms through emergency powers.
On Sunday 19 March 2023, 167 years of Credit Suisse history came to an abrupt end. In a government-brokered emergency deal, UBS agreed to acquire its stricken rival for CHF 3 billion ($3.2 billion), a fraction of the bank’s tangible book value, backed by over CHF 100 billion in Swiss National Bank liquidity support and a CHF 9 billion government guarantee against potential losses. The Swiss Federal Council invoked emergency powers to bypass shareholder approval. And in the most controversial element of the transaction, FINMA ordered the complete write-down of CHF 16 billion ($17.2 billion) in Additional Tier 1 bonds to zero: the largest AT1 loss in history, and a decision that upended the established creditor hierarchy of European bank capital structures.
The Credit Suisse rescue was not a standalone event. It arrived barely a week after the collapse of Silicon Valley Bank and Signature Bank in the United States, amid mounting fears that the regional banking crisis was metastasising into a global contagion. But the mechanisms at play in Zurich were fundamentally different from those in Silicon Valley, and the market implications more far-reaching. The AT1 write-down sent shockwaves through the $275 billion global CoCo bond market and raised questions about the reliability of the post-2008 bank resolution framework.
The Final Days: From Confidence Crisis to Forced Sale
Credit Suisse’s problems were years in the making. The bank had been battered by a succession of scandals and losses: the $5.5 billion Archegos margin call in 2021, the $10 billion Greensill supply chain finance collapse, the Mozambique corruption case, surveillance scandals, and persistent management turnover. By late 2022, client outflows had accelerated as confidence evaporated. In the fourth quarter alone, the bank lost over CHF 110 billion in assets under management.
The immediate trigger was the contagion fear generated by the US banking failures. When the bank’s largest shareholder, Saudi National Bank, publicly stated on 15 March that it would not increase its stake, Credit Suisse shares plunged 24% in a single session. Credit default swap spreads surged to distressed levels. The run was on.
The Swiss National Bank initially provided CHF 50 billion in emergency liquidity on 16 March. It was not enough. Over the weekend of 18-19 March, the Swiss authorities concluded that only a full takeover by UBS could prevent a disorderly failure.
The AT1 Write-Down: Detonating the CoCo Market
The centrepiece of the market impact was FINMA’s decision to write down Credit Suisse’s AT1 bonds to zero while allowing equity holders to receive CHF 3 billion. Goldman Sachs’ credit strategists called it “an effective subordination of AT1 bondholders to shareholders” and “the largest loss ever inflicted on AT1 investors since the birth of the asset class.”
The legal basis was contentious. Credit Suisse’s AT1 documentation contained a “viability event” clause permitting full write-down if extraordinary government support was granted. FINMA argued this clause had been triggered. Credit Suisse’s own legal team disagreed, urging FINMA in internal emails to “reconsider and abstain from any determination of the occurrence of a Viability Event,” arguing the bank faced a liquidity crisis, not a capital shortfall. The Swiss Federal Council introduced an emergency decree that evening, adding Article 5a to grant FINMA explicit write-down authority. FINMA’s formal order followed at 10:01 p.m.
In October 2025, the Swiss Federal Administrative Court ruled the AT1 write-down unlawful, finding that the emergency decree itself “exceeded the Federal Council’s constitutional powers.” FINMA has appealed, with litigation expected to continue through at least 2028.
The Market Fallout: Repricing Risk Across European Credit
AT1 bonds from European banks sold off sharply, with average yields nearly doubling within days. A “Swiss penalty” emerged in the CoCo market. The panic extended beyond AT1s, with European bank equities falling broadly and credit default swap spreads widening across the sector.
Critically, both the Bank of England and the European Banking Authority moved within hours to distance themselves from FINMA’s approach. The BoE stated that a “clear statutory order” existed in UK bank resolutions, with equity absorbing losses before AT1. Former ECB vice president Vitor Constancio called the Swiss AT1 decision “a mistake with consequences.”
What the Market Is Misunderstanding
The AT1 market has recovered, but the structural lesson has not been absorbed. By November 2023, UBS itself was back in the AT1 market, selling $3.5 billion in new CoCos with $36 billion in orders. Investors are effectively betting that regulators in other jurisdictions will never repeat FINMA’s decision.
The “Swiss exception” narrative is too comforting. CEPR’s analysis notes that Credit Suisse “failed despite being highly capitalised,” underscoring that liquidity crises can overwhelm even well-capitalised institutions.
The deal was extraordinarily favourable to UBS. UBS acquired a 167-year-old global bank for $3.2 billion, received CHF 100 billion in central bank liquidity, and was granted a CHF 9 billion government guarantee. Credit Suisse’s final earnings report revealed net asset outflows of CHF 61.2 billion ($68.6 billion) during the first quarter collapse.
Structural Interpretation: The Post-2008 Resolution Framework Under Stress
The Credit Suisse rescue exposes a fundamental tension in the post-2008 bank resolution framework. FINMA’s decision to invert the creditor hierarchy undermines the fundamental premise of the bail-in framework.
Implications for Investors
AT1/CoCo bonds require a new risk framework. Investors can no longer evaluate AT1s solely on credit fundamentals.
Jurisdictional analysis matters enormously. The divergence between FINMA’s approach and the BoE/EBA responses demonstrates that AT1 treatment in a crisis will vary by jurisdiction.
European bank equities face a structural re-rating challenge. The combination of US regional bank failures and the Credit Suisse rescue has reinforced the valuation discount.
The “too big to fail” doctrine remains intact, but its costs have been redistributed. The costs were borne disproportionately by AT1 bondholders rather than taxpayers or equity holders.
Conclusion
The Credit Suisse emergency was more than a bank failure. It was a stress test of the post-2008 resolution architecture, and the results were mixed at best. The precedent has been set: in a genuine crisis, the rules can change overnight.
Related Reading
- For our earlier coverage of one of the key scandals that weakened Credit Suisse, see Archegos Capital Collapse: The $30 Billion Margin Call
- For our coverage of the broader US banking crisis that triggered Credit Suisse’s final run, see Banking Crisis 2023: Signature Bank, Silvergate, and Contagion Fears
Sources: Wikipedia, CNBC, Oxford Law Blog, CEPR VoxEU, Economics Observatory, finews.com, CNBC (Q1 Earnings) For a later episode of institutional confidence collapse driven by redemption gates and hidden losses, see The Private Credit Crackup: Blue Owl, Redemption Gates, and the Liquidity Illusion.
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