Canada’s Banking Regulator Reiterates Creditor Hierarchy After Credit Suisse Deal Riled Bondholders

Canada’s banking regulator said on Monday that those who hold Additional Tier 1 (AT1) and Tier 2 debt will be eligible for a more favourable outcome if a bank got into deep water.

The Office of the Superintendent of Financial Institutions strengthened its guidance because of a rescue plan for Swiss lender Credit Suisse (CSGN.S) that seemed to leave some of the bank’s junior bondholders with nothing.

If a bank gets to the point of “non-viability”, common shareholders of the bank will be the first to incur losses, the Canadian regulator said.

Credit Suisse disclosed on Sunday that 16 billion Swiss francs ($17.22 billion) of its AT1 debt will be written down to zero on the instructions of the Swiss regulator as part of its rescue merger with UBS Group AG (UBSG.S).

It means AT1 bondholders seem to remain with nothing while shareholders, who normally rank below bondholders in terms of who gets paid when a company collapses, will get $3.23 billion under the deal.

Lawyers from Switzerland, the UK and the United States are talking to a several of Credit Suisse AT1 bond holders about possible legal action, law firm Quinn Emanuel Urquhart & Sullivan said on Monday.

($1 = 0.9285 Swiss franc)