Canada’s banking regulator reaffirms creditor hierarchy after Credit Suisse deal angers bondholders

Canada’s banking regulator said on Monday that those who hold Additional Tier 1 (AT1) and Tier 2 debt will be entitled to a more favorable outcome if a bank runs into trouble.

The Office of the Superintendent of Financial Institutions reinforced its guidance in the wake of a rescue plan for Swiss lender Credit Suisse that appeared to leave some of the bank’s junior bondholders with nothing.

If a bank reaches the point of “non-viability”, common shareholders of the bank will be the first to suffer losses, the Canadian regulator said.

Credit Suisse said on Sunday that 16 billion Swiss francs ($17.22 billion) of its AT1 debt will be written down to zero on the orders of the Swiss regulator as part of its rescue merger with UBS Group AG.

It means AT1 bondholders appear to be left with nothing while shareholders, who usually rank below bondholders in terms of who gets paid when a company collapses, will receive $3.23 billion under the deal.

Lawyers from Switzerland, the United States and UK are talking to a number of Credit Suisse AT1 bond holders about possible legal action, law firm Quinn Emanuel Urquhart & Sullivan said on Monday.

($1 = 0.9285 Swiss franc)

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