Credit Suisse AT1 wipeout: the price of UBS’s ‘yes’

UBS wanted a full state guarantee. The Swiss government refused. The takeover that followed included the cancellation of approximately SFr16.5bn owed to Credit Suisse’s Additional Tier 1 investors.

These were not unrelated features of the rescue. In its own account of the enforcement proceedings, FINMA describes the AT1 cancellation as a necessary component of the package that made the merger possible. The write-off was not merely something that happened alongside the transaction. It helped make the transaction happen.

That is where the financial regulator’s explanation of a contractual trigger meets a different question: the allocation of the acquisition’s costs and risks.

The legal argument concerned what extraordinary public support permitted FINMA to do. The negotiating problem concerned what it would take to get UBS to agree.

The bondholders’ losses sat at the intersection.

The price of protection

In her September 26 interview with CH Media, Karin Keller-Sutter recalls UBS representatives arriving at their first meeting with an A4 sheet listing their conditions. At the bottom was a demand for a full state guarantee. She rejected it. An agreement came later. Without the narrower SFr9bn federal loss guarantee ultimately provided, she says, UBS would not have taken over Credit Suisse.

Keller-Sutter does not discuss AT1 bonds in the interview. The connection comes from the negotiating record.

The parliamentary inquiry’s report records an AT1 write-down in UBS’s revised demands of March 16, 2023, linked to protection against purchase-accounting valuation adjustments. By March 18, FINMA’s board was being told that cancellation was a necessary, non-negotiable component of the UBS transaction.

The inquiry’s conclusion on page 424 supplies the connection to public exposure: it considered credible that UBS would have accepted the takeover without the write-off only against substantially greater federal guarantees.

Philipp H. Haberbeck, a lawyer representing AT1 appellants, draws that economic inference in his commentary on the interview. Read together, he argues, the minister’s account and the parliamentary findings support the interpretation that cancellation supplied a risk buffer enabling the takeover on the terms negotiated with UBS. He disputes that the contractual write-down provisions authorised that use.

UBS’s original presentation of the acquisition also emphasised protection. Its March 19 announcement identified SFr25bn of downside protection supporting valuation adjustments and restructuring costs, alongside the SFr3bn all-share purchase price. Protection for the buyer was an advertised feature of the transaction.

An acquisition can be the means of rescuing a bank. But the need for a rescue does not make every condition demanded by its buyer an unavoidable consequence of the bank’s financial position.

The loans explained the trigger. The negotiations explained the use.

FINMA’s public justification on March 23, 2023 was that extraordinary liquidity assistance, secured by a federal guarantee, had activated the contractual viability event. The assistance came from the Swiss National Bank; the Confederation’s role included guaranteeing it. FINMA also relied on Article 5a of the emergency ordinance as authority to order the cancellation.

The regulator was not claiming that Credit Suisse had simply run out of regulatory capital. Its announcement on the rescue weekend recognised that the bank could become illiquid even while solvent, following a crisis of confidence and substantial outflows.

That distinction is fundamental. A solvent bank can fail if it cannot meet withdrawals. But cancelling debt does not put fresh cash in its vaults. FINMA described the write-off as increasing core capital; the liquidity facilities supplied funding. These were different mechanisms within the same package.

The subsequent Federal Administrative Court ruling turned on that distinction. Under its interpretation of the bond terms, the liquidity assistance did not have the direct effect on the capital base required for the contractual trigger. The court found Credit Suisse sufficiently capitalised and compliant with regulatory capital requirements.

The economic function identified in the negotiating record therefore matters independently of FINMA’s trigger argument. It explains what the cancellation helped accomplish commercially, without settling what the contracts allowed legally.

Credit Suisse objected before the order

At 4.24pm on March 19, Credit Suisse emailed FINMA disputing the contractual trigger. Its warning, reproduced in the court judgment, said the proposed measures addressed liquidity, not insufficient capital. It also argued that equity created by cancellation was absent from the deal’s valuation and would constitute:

“a gift of ca CHF 16bn to the shareholders of the acquiring party”.

That was Credit Suisse’s assessment, not an independently established valuation of UBS’s benefit. But it was a warning from the bank whose liabilities were about to disappear — delivered before they disappeared.

Antigua.news reported the contractual objections in May 2023, when it published FINMA’s disclosed decisions. The objection was not constructed years afterwards to challenge a completed rescue.

At 6.24pm, FINMA replied that it would impose the cancellation if Credit Suisse did not act. The formal order was served at 10.01pm.

The record is therefore more precise than a claim that nobody thought about the contracts: the issuer disputed the contractual authority, and the cancellation proceeded.

The power added that evening

Article 5a was added to the emergency ordinance on March 19, taking effect at 8pm — before service of the formal write-off order, not after it.

The provision expressly empowered FINMA to order the write-down of additional core capital in connection with the relevant credit approval. It supplied an emergency-law route alongside the regulator’s contested interpretation of the contracts.

The parliamentary record identifies a specific limitation in the legal consultation: on March 18, the Federal Office of Justice had been involved only superficially in the AT1 question and did not know the precise issuance conditions governing cancellation.

That cannot be generalised into an assertion that FINMA had done no preparation. The inquiry recorded work on possible write-offs dating back to October 2022 and assessed the regulator’s preparation favourably. It also considered cancellation relevant to alternative crisis scenarios.

The documents establish neither that AT1 holders could have escaped losses under every alternative nor that the emergency power was invented only after Credit Suisse’s afternoon email.

They establish something narrower: the authorities completed a transaction incorporating cancellation while the issuer expressly contested its contractual basis, and an additional statutory power entered into force that evening.

The rule-of-law question has already reached a court

The legal consequence is not merely a question for an opinion column.

In its partial judgment of October 1, 2025, the Federal Administrative Court found both the contractual trigger and a sufficient legal basis lacking. It held that Article 5a failed constitutional requirements, including those governing emergency powers and protection of property.

Its reasoning addressed the commercial context directly: emergency powers could not, in the circumstances it examined, be used to protect a party’s interests in a private-law transaction despite existing legislation.

As antigua.news reported when the ruling became public, the judgment annulled FINMA’s decree; it did not itself order repayment or restore the bonds.

The decision was appealed. FINMA announced its challenge on October 15, 2025, maintaining that the write-off belonged to the overall stabilisation package. The constitutional and contractual findings should not be presented as a final appellate determination.

But neither should they be reduced to an unanswered suspicion. A court has already examined the asserted authority and rejected it.

Contingent protection, immediate loss

The guarantees and the cancellation were economically different forms of protection.

The SFr9bn federal loss guarantee covered a designated portfolio only after UBS absorbed the first SFr5bn of losses. UBS terminated the agreement on August 11, 2023, following its assessment of the assets. That later decision does not demonstrate that protection was unnecessary during the rescue weekend. It demonstrates its contingent nature: exposure could be assumed and subsequently withdrawn without the guarantee being called.

The AT1 cancellation, by contrast, imposed the loss upfront. Ending the guarantee did not undo it.

There is no sound basis for treating a franc of cancelled debt as automatically equivalent to a franc of public guarantee avoided. Nevertheless, the distinction explains why the allocation matters: the transaction combined conditional public exposure with the immediate extinction of investors’ claims.

The official account establishes the cancellation’s place in obtaining agreement to the merger. It does not, by itself, establish an entitlement to impose that cost on the bondholders. On the Federal Administrative Court’s analysis, the transaction had an answer to who would bear that cost. It did not have a lawful basis for imposing that answer on AT1 holders.

AT1 bonds are designed to absorb bank losses under prescribed conditions. Making an acquisition more attractive to a buyer is not, in itself, a write-down trigger. FINMA maintained that extraordinary state-backed liquidity assistance had activated the contractual provisions; the Federal Administrative Court rejected that interpretation and found no sufficient statutory basis for the cancellation either. On the court’s analysis, the commercial need to secure UBS’s agreement could not supply the missing legal authority. Meeting the buyer’s conditions for the takeover was not a substitute for meeting the conditions for wiping out the bonds.

In a state governed by the rule of law, it is the law—or, in relations between private parties, the contract—that predetermines the conditions to which a particular legal consequence is attached. In the case of Credit Suisse’s AT1 bonds, an uncomfortable question therefore remains: was it the occurrence of the prescribed conditions that determined the legal consequence, or was it a specific agenda pursued by the Swiss Confederation and UBS that predetermined the desired outcome and only afterwards drove the search for a legal basis capable of justifying it?