If a bank’s capital ratio falls below a predefined threshold, AT1 investors can lose their principle or have their investment converted to equity.
More normally see that with Americans – confusion between principal and principle. Tsk.
If a bank’s capital ratio falls below a predefined threshold, AT1 investors can lose their principle or have their investment converted to equity.
More normally see that with Americans – confusion between principal and principle. Tsk.
“Americans – confusion between principal and principle.”
You can see clues on British TV that whodunnits are written in hopes they’ll sell in America. (I only watch football, rugby and whodunnits.) Thus, one policeman will offer another the use of a “flashlight”. You also get attention to American rather than British obsessions and absurd explanations of things we’d take for granted.
I think there’s an argument that, in that situation, the investors will lose their principles.
Just not the argument being made by FT.
Given the two Alphaville articles, investors in the AT1s may actually have lost a principle, and indeed, their principal.
Those are my principals, and if you don’t like them… well, I have others.
Apparently, those AT1 assets were a special sort of bond that could be converted into an equity if things got tricky. So, if they could be they always were, equities. Hence what The Swiss government did by not honouring those AT1 bonds when ramming Credit Suisse into UBS was all fine and dandy. Not that the EU and the BoE think so. Sigh
Everyone agrees that the A1T bonds are convertibles – contingent convertibles in fact. In bankruptcy they convert to equity (the CS ones don;’t even issue stock to go with it, just lose the money). All agreed.
It’s that such bonds should only convert *after* equity is wiped out. That’s what everyone thought was the general understanding. Ths Swiss didn’t.