1:10 p.m. ET, March 20, 2023
Deutsche Bank says it has “almost zero” exposure to Credit Suisse’s worthless debt
From CNN’s Mark Thompson
(Armando Babani/AFP/Getty Images)
One of Europe’s largest banks took swift action Monday to reassure investors that it does not hold significant amounts of a particularly risky type of bonds issued by Credit Suisse.
Credit Suisse’s “alternative tier one” or AT1 bonds were subject to a “full write-off” of their face value of CHF 16 billion ($17 billion) as a condition of the Swiss government’s support for the emergency rescue by UBS .
“Our exposure to Credit Suisse’s AT1s is close to zero,” Deutsche Bank said in a statement.
Deutsche Bank had its own share of troubles in the middle of the last decade, but Germany’s largest bank bounced back strongly and last month reported its highest pre-tax profit in 15 years.
Shares of the bank fell 3% on Monday, broadly in line with the broader European banking sector.
Christine Lagarde, president of the European Central Bank, said in a speech Monday afternoon that euro area banks had “very limited exposure” to Credit Suisse, particularly with respect to AT1 bonds.
“We’re not talking billions, we’re talking millions,” she said.
Analysts said the surprise move to weed out Credit Suisse’s AT1 bondholders had upset investors, especially since shareholders — usually the last in line for a payout when a bank fails — would receive something.
EU banking regulators welcomed the “comprehensive set of measures” taken by Swiss authorities on Sunday, but said on Monday they would act differently if ever necessary.
“Common equity instruments, in particular, are the first to absorb losses, and only after they are fully used should the supplementary list be written off,” said the Single Resolution Board (SRB), the European Banking Authority and the European Central Bank. said in a joint statement. “This approach has been applied consistently in previous cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions.”
Some background: AT1s belong to a type of bank capital known as “contingent convertibles”. They are popular with institutional investors because they often offer a higher yield than other bank debt and corporate bonds of a similar rating. However, due to their ‘convertible’ nature, they can be fully written off or exchanged for equity if a bank gets into trouble.
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