Holders of Credit Suisse additional tier one (AT1) bonds received a shot in the arm this week after a ruling by a Swiss court. A decree made by the Swiss regulator in 2023 — which had ordered Sfr16.5bn of AT1 holdings to be written down to zero — was revoked.
Claims on Credit Suisse AT1s — which are quoted by specialist distressed debt or special situation trading desks within banks — catapulted higher from the low teens to as high as 35 cents. That sharp repricing suggested to some that the ruling was unexpected.
Yet for those with skin in the game, there was still a dose of pessimism. One said that although the ruling was important, he didn't think his firm would see any money from it.
The crux of the issue is how long it will take to achieve any redress. In the case of Lehman Brothers, the main liquidation ended 14 years after the bank went under.
A bad lawyer can let a case drag out for months, while a good lawyer can make it last for years, goes the saying. This AT1 case could easily have another decade or more to run.
To be resolved are who is on the hook for the compensation: the Swiss government or UBS, which took Credit Suisse over? Also, what should the recovery be? The AT1s were already said to be quoted at distressed levels when the Swiss regulator wiped them out. Predictions range from zero to par.
But there is another option that holders of Credit Suisse AT1s should consider.
While the price to purchase a claim on the AT1s shot up on Thursday, so did the price to sell — this is a two-way market which was spotted about 25/30 cents at the end of the week.
As such, investors long CS AT1 bonds might be wise to hit the bid at 25 and invest those proceeds elsewhere for the the next 10 years, or longer.
And why not fully embrace such capricious behaviour, and invest in Bitcoin, which was trading around $27.5k when Credit Suisse was tanking but cost $108k each now?
Does the smart money stick with the Dickensian AT1 claims or ride the Gen Z bubble into the next decade?
YOLO, says the youthful, liberated end of the investing spectrum. Why waste that time waiting for the Swiss legal system to pay you pennies on the dollar?