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Credit Suisse’s $17B of Risky Bonds Are Now Worthless
- pizzaknife 4y agoevery 10-15yrs. like the set interval of a ground swell, traversing the pacific ocean. Sets roll in, the surfers waiting turn and paddle hard. How unimaginative we are
- CaliforniaKarl 4y agohttps://archive.md/EmhLs https://archive.md/EmhLs
- codetrotter 4y agoAnd they wonder why we want to replace the traditional banking system. Here’s a hint: it’s not got anything to do with either “metaverse” bs nor with silly “NFT” JPEGs. Read the original Bitcoin whitepaper. https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf
- justinzollars 4y agoThe competing system is BRICS + Saudi Arabia, Egypt, Iran, Turkey and Pakistan. They will probably transact in gold - certainly not bitcoin. In the West, if there is a collapse of our system, they will make bitcoin illegal. I just don't see it as anything other than a short term speculation.
- georgeplusplus 4y agoThe problems with the gold standard is we had one and everyone lied about how much gold they had, Causing the lost decade in the 70s/80s. Maybe BRICS will propose a solution that uses Blockchain to verify gold ledgers.
- adhesive_wombat 4y agoThe ledger is verified but how do you know the gold is really there?
- georgeplusplus 4y agoYou ask for the counterparty to send it. Historically, the dollar was the ledger and redeemable in gold. Which the USA printed a lot more than it said it did. A ledger would stop this kind of abuse.
- notahacker 4y agoThe ledger wouldn't stop the abuse at all. USDT is a ledger. The ledger didn't change at all when Binance's public position moved from "every USDT is backed with an actual dollar" to "well we have a reserve of dollars and some... er ... other assets", and nothing about the ledger tells you if Binance ever had the dollars in the first place.
- adhesive_wombat 4y agoThat would only prove that there's enough gold in a pile to send you some. It doesn't prove the entire ledger is accurate. If you're dealing with physical goods, there's always an analogue hole unless there's a (usually centralised) authority standing by to penalise attempts to subvert the system. One can conceive of "for-now-unforgeable" NFT-isation of physical items, perhaps based on random physical phenomena like metal grain patterns, with the fingerprints stored in the blockchain. But this would be expensive and is a disadvantage compared to the "gold in a pile at least as big as we told you" system. And it's still open to kinds of abuse: e.g. you can secretly melt some coins down and recast them into new ones, as long as you can avoid anyone asking to see the "burned" ones, and you can also file fake fingerprints for coins that don't exist, that no one really owns, in the ledger so they won't need to be proven, but they inflate your ledger's value.
- Yoric 4y agoHow could blockchain verify anything physical?
- junofan 4y agoIn the West, if there is a risk of collapse, it will be illegal to take your money out.
- csomar 4y agoCan the exit tax, then, be considered as a partial collapse (or a hint of it)?
- csomar 4y agoThey'll transact with Bitcoin given two conditions: 1. They know that resistance is futile. You can't stop it (or at least one party acting alone can't stop it) and 2. Crypto is liquid enough across many markets. People (and government) will use the path of least resistance. Crypto is pretty liquid in many parts of the world now. You can P2P from crypto to your bank account and $10K is pretty feasible. However, $1Bn is not (outside the US and maybe EU). Once the liquidity is high enough, point 2 becomes possible. Point 1 always was.
- tuyguntn 4y agoissues are coming up mostly because of interest based economy and multitude of instruments built on top of it. IMHO, even if whole banking system will be replaced with bitcoin, interest based economy will be built on top of it and same instruments will be built with similar level of issues
- pfannkuchen 4y agoThe difference is that a central authority doesn’t control the size of the bitcoin supply. It wouldn’t be a utopia, it would only fix a certain class of problems we have today.
- r_hoods_ghost 4y agoA central authority doesn't control the size of the money supply in our current economy either, as the vast majority of money is created by private banks and other institutions issuing loans.
- lowkey 4y agoThose “private banks” are at least in theory heavily regulated by the central bank. The central bank controls interest rates and thereby the cost of money. They control the amount of base money in the system and they control the reserve ratio of “private banks” thereby controlling the amount of leverage banks can apply to deposits. A central bank most certainly controls every aspect of the money supply.
- lowkey 4y agoNotably, the Fed set the reserve ratio for banks to zero percent in 2020 which absolutely contributed to this latest banking crisis. I am a bit surprised this hasn’t been mentioned as a contributing risk in the media, well not that surprised. [0] [0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- ClumsyPilot 4y ago
- qwytw 4y agoUsing an ultra deflationary token like bitcoin as a global currency would literally be the most stupid thing that ever happened in human history. Basically people who held significant amounts of bitcoin from early on would become billionaires (if not trillionaires...) by having provided zero value to the economy. As awful and unfair what we have currently is it's still several magnitudes superior in almost any conceivable way than a global financial system based on bitcoin. I can imagine some sort of a crypto currency possible becoming dominant in the future. But Bitcoin itself is pretty much the worst option I can imagine.
- DethNinja 4y agoHow do you know they provide negative value to economy? Perhaps they would invest their bitcoins far better than the current status quo and create a star-trek style post scarcity economy.
- anothernewdude 4y agoPerhaps I'll start shitting out gold and we can go back to the gold standard.
- qwytw 4y ago> How do you know they provide negative value to economy? Very basic understanding of modern economics and monetary systems would be more than enough to figure that out. > post scarcity economy In fact it would maximize scarcity (imagine the Fed hiking interest rates to + 20% while inflation becomes negative, say - 20%. What do you think would happen?)
- yevpats 4y agoI don't have a side in the whole crypto vs fiat war but I do wonder why HN is so anti-crypto (maybe it's just classic position speak). Re the "people who held significant amounts of bitcoin from early on would become billionaires by having provided zero value" - isn't that true to people who held Google stock very early on? what was their value? Also, I would say inflationary token vs deflationary token is not clear what is better because it is actually highly depends on the time in history. lot's of things changed in the last 100 years and we might be entering a world where there is no need for inflationary token - For example let's say the earth is over-populated and there is going to be a decline in birth and total population - this on it's can mean we don't necessarily need an inflationary token as we don't need to build more infrastructure, buy more things and so on....
- rossdavidh 4y agoI don't think anyone (that I ever talked to about it) wondered why one would be dissatisfied with the traditional banking system. The skepticism about Bitcoin is that it might be even worse. Events of the past year in the cryptocurrency space have not been all that reassuring.
- zhoutong 4y agoI was initially surprised about this because AT1 notes are supposed to rank higher than equity. It seems that almost no one saw this coming (CS AT1 bonds traded higher this weekend before the write-down announcement), and traders presumed that bondholders should be made whole if equity holders get something. However then I looked at the information memorandum of these AT1 bonds (e.g. https://www.credit-suisse.com/media/assets/about-us/docs/investor-relations/debt-investors/high-trigger-capital-instruments/t1-2000m-usd-2018.pdf https://www.credit-suisse.com/media/assets/about-us/docs/inv...). Credit Suisse titled their issues as "Perpetual Tier 1 Contingent Write-down Capital Notes". Note that it's "contingent write-down" rather than the more typical "contingent convertible". The IM also doesn't contain an explicit conversion price or conditions. Almost everyone would call this a "CoCo bond", even though its terms are exceedingly clear -- if CET1 falls below 7%, a Contingency Event, which is a Write-down Event, occurs, and "the full principal amount of the Notes will automatically and permanently be written-down to zero on the Write-down Date." In other IM issued by other banks I've seen, usually such event is followed by a mandatory conversion to ordinary shares rather than an immediate write-down. I wonder if this nuance was fully considered and priced in the trading of such instruments.
- cm2187 4y agoExcept that the CET1 is above 14%. I think what happened wasn't related the coco trigger but a bailin, i.e. the regulator forcing losses on bond holders to create equity. So the terms of the coco feature aren't really relevant.
- zhoutong 4y agoUpon further reading I found that the Viability Event (which is also a Write-down Event) is probably the applicable one in this case: > (b) customary measures to improve CSG’s capital adequacy being at the time inadequate or unfeasible, CSG has received an irrevocable commitment of extraordinary support from the Public Sector (beyond customary transactions and arrangements in the ordinary course) that has, or imminently will have, the effect of improving CSG’s capital adequacy and without which, in the determination of the Regulator, CSG would have become insolvent, bankrupt, unable to pay a material part of its debts as they fall due or unable to carry on its business. Clearly this deal required non-customary, extraordinary support from the Public Sector, so if the regulator determines that without such a transaction CSG would have liquidity issues, then this event would occur. However I think my point stands that the terms of these CS AT1 notes should be understood as materially different from similar securities. For example, this note from ING (https://www.ing.com/MediaEditPage/XS2122174415-ING-Groep-N.V.-U.S.-750000000-4.875-Perpetual-Additional-Tier-1-Contingent-Convertible-Capital-Securities.htm https://www.ing.com/MediaEditPage/XS2122174415-ING-Groep-N.V...) has a single Trigger Event that will cause mandatory conversion into ordinary shares, and a more general provision for Statutory Loss Absorption which may be a conversion or a write-down. The terms of CS AT1 notes do not seem to provide for any automatic or discretionary conversion, only automatic write-down. I completely agree that in situations like this, the regulators have a lot of discretion on these bail-in securities, but I consider this "automatic permanent write-down" feature to be of a materially higher risk than "automatic mandatory conversion" variant because it could be a difference between getting back something (or everything) vs nothing. What the regulators do are, by definition, not "automatic", and an automatic write-down should be a much lower hurdle than an explicit regulatory action.
- cpncrunch 4y agoThe Reuters article has more background information, and isn't behind a paywall: https://www.reuters.com/business/finance/credit-suisse-writes-down-17-bln-bonds-zero-angering-holders-2023-03-19/ https://www.reuters.com/business/finance/credit-suisse-write...
- photochemsyn 4y agoThis also, more explicit about the shareholders and bondholders, also not paywalled (Reuters doesn't even mention Saudi and Qatari losses): https://www.afr.com/companies/financial-services/one-big-winner-and-many-losers-from-credit-suisse-collapse-20230320-p5ctlq https://www.afr.com/companies/financial-services/one-big-win...
- TheOtherHobbes 4y agoIf the casino always wins, why is it so hard to identify who owns this[1] casino? [1] Not CS, but the entire "serious" financial system.
- KarlKemp 4y agoWell don’t keep us guessing! What’s the secret cabal owning the financial system, according to your research, and how do they manage to own both the „serious“ business and the funny pages?
- markus_zhang 4y agoThe winners?
- snapplebobapple 4y agoMy vote goes to the Rockefellers (who are actually psychic mushroom people first discovered in caves about halfway into the hollow earth. This is why they use that last name. The first people they encountered referred to them as "them rock fellers" before they were psychically controlled.)
- pram 4y agoThose are the Fraggles, common misconception.
- snapplebobapple 4y agoCareful, this place can't take a joke, even when it is hilarious.
- weard_beard 4y agoThey’re supposed to come in threes so you know it’s a joke. Damn, I had something about Blackrock.
- 4y ago
- berkle4455 4y agoSo did CS officially fail now?
- nemo44x 4y agoYes, it is now the 5th failed bank in the last week.
- paganel 4y agoI wonder how Deutsche is now feeling. For all its past mishaps I never would have imagined CS actually going down, or being allowed to go down in such a manner. The same discourse was being applied to Deutsche as recently as last year, if I'm not mistaken, hence my curiosity.
- rossdavidh 4y agoI'm not all that surprised. CS didn't make one mistake, not even one really big mistake; it was involved in scandal after misstep after scandal after embarrassment, for a decade. It takes a lot to bring down an institution this old and big, but the CS management (mostly former) had what it took. I think part of why the Swiss gov't wanted to do it this way, is that it was clear CS was going to continue to be a problem, if it was rescued in a way that kept it an independent bank. Not that the current top mgmt is really responsible for its current state, but there had to be a fair amount of institutional/cultural issues, for that many problems to hit the same bank, year after year.
- ur-whale 4y ago> So did CS officially fail now? Define "fail". Did they fail their shareholders? Did they fail their creditors? Did they fail their clients? And if so the latter, which category?
- ur-whale 4y ago> "It's stunning and hard to understand how they can reverse the hierarchy between AT1 holders and shareholders," said Jerome Legras Finance dude has a hard time understanding the concept of a sovereign government. Makes you wonder what other first principles the world operates on he has a hard time understanding.
- unmole 4y ago> Finance dude has a hard time understanding the concept of a sovereign government. I don't understand what finance dude is saying. AT1 bonds can be written off before equity. It has happened before, albeit at a much smaller scale.