Sector developments and company hires

Credit Suisse AT1 write-downs ‘rip up rules’
UBS has agreed to acquire Credit Suisse, creating a business with more than US$5trn in total invested assets and supporting the bank’s growth ambitions in the Americas and Asia, while adding scale to its business in Europe. Under the terms of the all-share transaction, Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares held, equivalent to Sfr0.76 per share for a total consideration of Sfr3bn. However, in a move that has shocked many market participants, Credit Suisse AT1 debtholders have been written down to zero.  

In a blog published today, TwentyFour Asset Management says it believes that the Swiss regulators have “ripped up the rules for investing in a company”. The law was reportedly changed over the weekend, which seemingly allowed the Credit Suisse liquidity facility - put in place last week - to be used as a reason to trigger a viability event.

As part of the agreement, UBS will benefit from Sfr25bn of downside protection to “support marks, purchase price adjustments and restructuring costs”, as well as additional 50% downside protection on non-core assets. The Swiss government will provide Sfr8.5bn to backstop losses that UBS might incur during the takeover and the Swiss National Bank (SNB) will provide a further US$100bn of liquidity to UBS to help facilitate the deal.

Following the acquisition, UBS Investment Bank will reinforce its global competitive position with institutional, corporate and wealth management clients through the acceleration of strategic goals in its global banking segment, while managing down the rest of Credit Suisse’s investment bank, with the aim of cutting costs by over US$8bn by 2027. The combined investment banking businesses accounts for approximately 25% of group RWAs.

Colm Kelleher will be chairman and Ralph Hamers will be group ceo of the combined entity.

The transaction is not subject to shareholder approval and is expected to be closed by year-end. UBS says it has obtained pre-agreement from FINMA, SNB, Swiss Federal Department of Finance on the timely approval of the transaction.

In a statement welcoming the Swiss authorities’ actions, the ECB nevertheless noted that the EU resolution framework implemented after the financial crisis has established the order according to which shareholders and creditors of a troubled bank should bear losses. “In particular, common equity instruments are the first ones to absorb losses and only after their full use would Additional Tier 1 be required to be written down. This approach has been consistently applied in past cases and will continue to guide the actions of the Single Resolution Board and ECB banking supervision in crisis interventions,” the statement says.

The Bank of England also released a statement noting that the UK bank resolution framework has a clear statutory order, in which shareholders and creditors would bear losses in a resolution or insolvency scenario. The statement cites the approach used for the recent resolution of SVB UK, in which all of SVB UK’s AT1 and T2 instruments were written down in full and the whole of the firm’s equity was transferred for a nominal sum of £1 (SCI 13 March).

The TwentyFour AM blog references the Banco Espiritu Santo case from 2014, in which the Portuguese regulator was perceived to have failed to treat pari passu bondholders in an equal and fair manner. “Legal action was taken by bondholders and the process is still ongoing. The consequences for Portuguese banks were quite severe, as they were in practice locked out of international capital markets for years,” the blog notes.

In other news…

Energy performance building directive agreed
The European Parliament has voted in favour of a new Energy Performance Building Directive, with the objectives of making Europe’s building stock more energy efficient and addressing energy poverty. The agreement follows the original proposal by the European Commission in 2021 and the amendments made by the European Council in 2022.

According to the European Commission, buildings account for approximately 40% of the EU’s total energy consumption and 36% of its CO2 emissions. The directive will introduce a Minimum Energy Performance Standard (MEPS) for all existing buildings, to be reached by 2050, and a Mortgage Portfolio Standard (MPS). The latter will act as a decarbonisation pathway for mortgage portfolios, whereby mortgage lenders will be encouraged to help building owners renovate their buildings.

Additionally, the directive will seek to harmonise energy labels across Europe and create databases for those labels, so that they are comparable among member states. A Building Renovation Passport (BRP) will also be introduced in the form of an electronic document that provides building owners with the renovation potential and timeline of their house, in accordance with the MEPS. Operational carbon emissions (energy demand), as well as embodied carbon emissions (CO2 in the building materials) are in scope.

North America
PIMCO has promoted five executives with securitisation-related responsibilities to md - David Forgash, Kristofer Kraus, Ashish Tiwari, Bryan Tsu and Jing Yang. Kraus is a portfolio manager in the firm’s New York office, responsible for sourcing, underwriting and managing opportunistic specialty finance investments in the US and Europe.

The other four executives are based in PIMCO’s Newport Beach office. Forgash is a portfolio manager leading the firm’s leveraged finance business, overseeing high yield, CLOs and loan portfolios.

Tsu manages the firm’s StocksPLUS, multi-sector credit and securitised strategies, and is also a senior member of the insurance solutions team and a senior CMBS specialist. Yang oversees the ABS portfolio management team and focuses on StocksPLUS, multi-sector credit and securitised strategies. Finally, Tiwari heads product strategy for PIMCO’s discretionary hedge fund business.

Tamara debuts BNPL securitisation
Goldman Sachs has completed the Middle East’s first-of-its-kind buy now, pay later (BNPL) warehouse securitisation. Backed by US$150m BNPL receivables originated by Nakhla for Information Technology Systems (Tamara) in Saudi Arabia, the transaction is expected to support Tamara’s financing of further receivables and the expansion of its BNPL business in the country. As part of the movement towards using more complex structured solutions for raising financing across the Gulf Cooperation Council, the deal’s structure presents a new way for businesses to monetise receivables in the region.

Goldman Sachs was advised by White & Case, led by London-based partner Debashis Dey and involving several Dubai-based colleagues - partner Greg Pospodinis, counsel Rachet Butt and associates Salvia Matonyte, Eren Ayanlar, Ola Sanni and Gabrielle Low - as well as associates Nezar Al-Abbas in Riydah and Yuning Zhou in Hong Kong. “With the growth of the consumer economy in the Kingdom, we expect these transactions to become more in demand by providers of consumer goods and finance," comments Dey.