Investors in Credit Suisse's additional tier one (AT1) bonds will have their holdings wiped out, as the government-supported takeover of the bank by UBS sees the bond value written down to zero.
Revealed yesterday (19 March) as part of the Swiss regulator FINMA's statement approving the merger of the banks, the rewriting of the AT1 bonds took many by surprise.
The statement read: "The extraordinary government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around CHF 16bn, and thus an increase in core capital."
UBS agrees to buy Credit Suisse for $3.3bn
Alongside this, the Swiss Confederation and Swiss National Bank have offered further liquidity assistance to UBS and Credit Suisse in order to ensure "all obligations can continue to be met at all times throughout the transaction".
Asian markets sold off on the news, with China's CSI 300 down 0.5%, Japan's TOPIX down 1.5% and Hong Kong's Hang Seng closing 2.6% in the red, according to MarketWatch data
As markets open across Europe, the FTSE 100 is down 0.7%, while the Eurostoxx 600 has fallen 0.5%. Within the Eurostoxx, the banking index has fallen 3.4% on open and is trending further downwards.
In pre-market US trading, the S&P 500 is down 0.65%.
