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So UBS picks up CSFB for ~$3 billion and then immediately manages to write off $17B in debt. Word has it the book value was near zero when it was bought. So did

by jmyeet 4y ago

So UBS picks up CSFB for ~$3 billion and then immediately manages to write off $17B in debt. Word has it the book value was near zero when it was bought. So didn't UBS just pocket $17B+ for $3B? Sounds like a good deal if you can get it. Not for the AT1 bondhodlers of course.

cm2187 4y ago
Don't forget the 35bn of CET1 in CS. CS had stronger capital ratios than JPMorgan.
Kenji 4y ago
Yes. UBS made an _amazing_ deal right here. They bought out their biggest competitor in the country, blessed and assisted by the government, for pocket money. Someone's gonna celebrate on their private yacht after this masterstroke.
deleted 4y ago
[deleted]
scott00 4y ago
I think that people have been using the book value as of 31 Dec 2022. Probably lower now. The equity was trading around 9 billion on Friday, but traders could have been pricing in the assumption that the AT1s were getting written down even if it hadn't been officially decided.
maxerickson 4y ago
Is that the right way to describe it? I mean the deal triggering the write down. Another way to describe it is that the write down of the AT1 bonds makes the deal possible. From a consumer standpoint, the question is really how well the actual risk of the bonds was communicated, it sounds like the contract was executed as written.
- jmyeet 4y ago
  I don't know the technicalities of the AT1 trigger events and conditions but it seems from the article what happened is not what AT1 holders expected to happen, which is that when the bank fell out of compliance, coco bonds turned into equity. In this case the CSFB AT1 bonds were written down to zero value and the equity holders got something. Again, I have no opinion on if this is legal or even right. Some simply didn't expect this outcome, rightly or wrongly.
  - maxerickson 4y ago
    It's then plain that they didn't bother to understand what they were buying. From the article: Credit Suisse’s debt-issuance documents seem to allow for stockholders coming out on top. They note that at1 bond buyers have waived any right to reimbursement in a “write-down event”. Yet the idea that stockholders may be left with something and coco holders with nothing is contrary to the understanding many buyers had about what they were purchasing: namely, a hybrid security somewhere between stocks and debt in the stack of capital. That's a bad situation if retail investors were sold those contracts without careful explanation. Sophisticated investors can enjoy their cake.
vkou 4y ago
A better way to describe it is that morons lent out 17 billion dollars worth of debt under terms that would wipe them out if the bank ever ran into serious financial trouble. Whether UBS made any profit on the deal or not heavily depends on how much CS's book is worth. If it's worth more than the deposits, it's a good deal for them. Given the crap that CS invested in, it may be worth much less than bank's liabilities.

by jmyeet 4y ago

cm2187 4y ago

Don't forget the 35bn of CET1 in CS. CS had stronger capital ratios than JPMorgan.

Kenji 4y ago

Yes. UBS made an _amazing_ deal right here. They bought out their biggest competitor in the country, blessed and assisted by the government, for pocket money. Someone's gonna celebrate on their private yacht after this masterstroke.

deleted 4y ago

[deleted]

scott00 4y ago

I think that people have been using the book value as of 31 Dec 2022. Probably lower now. The equity was trading around 9 billion on Friday, but traders could have been pricing in the assumption that the AT1s were getting written down even if it hadn't been officially decided.

maxerickson 4y ago

Is that the right way to describe it? I mean the deal triggering the write down. Another way to describe it is that the write down of the AT1 bonds makes the deal possible. From a consumer standpoint, the question is really how well the actual risk of the bonds was communicated, it sounds like the contract was executed as written.

jmyeet 4y ago
I don't know the technicalities of the AT1 trigger events and conditions but it seems from the article what happened is not what AT1 holders expected to happen, which is that when the bank fell out of compliance, coco bonds turned into equity. In this case the CSFB AT1 bonds were written down to zero value and the equity holders got something. Again, I have no opinion on if this is legal or even right. Some simply didn't expect this outcome, rightly or wrongly.
- maxerickson 4y ago
  It's then plain that they didn't bother to understand what they were buying. From the article: Credit Suisse’s debt-issuance documents seem to allow for stockholders coming out on top. They note that at1 bond buyers have waived any right to reimbursement in a “write-down event”. Yet the idea that stockholders may be left with something and coco holders with nothing is contrary to the understanding many buyers had about what they were purchasing: namely, a hybrid security somewhere between stocks and debt in the stack of capital. That's a bad situation if retail investors were sold those contracts without careful explanation. Sophisticated investors can enjoy their cake.

vkou 4y ago

A better way to describe it is that morons lent out 17 billion dollars worth of debt under terms that would wipe them out if the bank ever ran into serious financial trouble. Whether UBS made any profit on the deal or not heavily depends on how much CS's book is worth. If it's worth more than the deposits, it's a good deal for them. Given the crap that CS invested in, it may be worth much less than bank's liabilities.