The elimination of Credit Suisse as an independent bank last weekend was swift and clinical, but the market response has been anything but. Bond issuance was all but closed this week.
Financial institution bond spreads widened massively at the beginning of the week, especially on additional tier one capital (AT1) bonds. This uber-geeky product became a household name when the Swiss authorities decided to wipe out all Sfr16bn of Credit Suisse’s AT1, treating it worse than the equity. We discuss whether AT1 can recover or is now fatally tainted.
We also explore when and how bond issuance will resume by public sector, financial and corporate borrowers. Volkswagen did manage to bring a successful deal this week, but in general even the public sector space was barren of deals as issuers shied away from the volatility. There were high hopes for next week, but with bank stocks falling on Friday, they are now fading.
Investment banks are already sensing an opportunity amid all the angst, however – they are trying to woo away Credit Suisse’s high quality corporate clients. It is early days, but there are reasons to believe they may have good success.
