US banking turmoil: Wipeout of risky bonds upends $275-billion market

Among the biggest losers in the shotgun sale of Credit Suisse Group are investors in the firm’s riskiest bonds, known as AT1s, worth $17 billion. 

These money managers are set to be wiped out — potentially sending that $275 billion market for bank funding into a tailspin, while threatening blowback for European policy makers in crisis-fighting mode.

Money managers are frantically poring through the fine print for these so-called additional tier 1 securities to understand if authorities in other countries could repeat what the Swiss government did on Sunday: Wiping them out while preserving $3.3 billion of value for equity investors. That’s not supposed to be the pecking order, some holders in the bonds insist.

“This just makes no sense,” said Patrik Kauffmann, a fixed-income portfolio manager at Aquila Asset Management, who holds the notes. “Shareholders should get zero” because “it’s crystal clear that AT1s are senior to stocks.”

UBS Group AG told Credit Suisse wealth bankers it’s weighing financial sweeteners for them to stay as it seeks to reassure key staff following the takeover, a person with knowledge of the matter told Reuters on Monday.

The top management reassured staff on Monday that the two banks will all be acting as a ‘big family,’ the person said.

Some clients may want to move assets: Credit Suisse

Credit Suisse told staff its wealth assets are operationally separate from UBS for now, but once they merged clients might want to consider moving some assets to another bank if concentration was a concern, according to an internal memo.

The memo seen by Reuters, gave talking points to Credit Suisse staff for client conversations after a historic Swiss-backed acquisition of the troubled bank by the UBS group.

“For now, assets are still legally separated. Once that changes, you (clients) may of course want to consider moving some of your assets to another bank if concentration is a concern,” the memo said.

That response was suggested to Credit Suisse staff if they were asked by clients what they should do if they were also a UBS client and wanted to avoid too much asset concentration, which can be a concern for wealthy customers.

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Bitcoin climbs to 9-month high

Bitcoin climbed to a nine-month high on Monday as turmoil in the banking sector drives some investors to turn to digital assets, as the cryptocurrency built on its best week in four years. The biggest cryptocurrency rose as far as $28,567, its highest since mid-June, and was last up 0.9 per cent, amid growing expectations that central banks would slow the pace of interest rate hikes.

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