CoCo bonds wipe-out: What next for the $260bn AT1 market?

Biggest loss for the market to date

The Swiss regulator’s decision that holders of $17bn of Credit Suisse’s additional tier 1 (AT1) bonds would have their investment wiped out following the bank’s takeover by UBS has cast doubts on the future of an asset class that is $260bn in size.

Established in the wake of the Global Financial Crisis, AT1 bonds, or CoCos, serve as shock absorbers and might be converted into equity or completely written off if a bank's capital levels drop below a predetermined level. Credit Suisse's AT1 wipe-out marked the largest loss for the market to date, surpassing the €1.4bn lost by bondholders at Spain's Banco Popular in 2017.  The move has sparked a negative reaction, given unsecured bondholders traditionally rank above equity holders in the capital structure. Some analysts have deemed the asset class "uninvestable", while others have s...