Why $17 billion in Credit Suisse bonds became worthless

Credit Suisse’s ‘CoCo’ bonds did exactly what they were designed to do: Transfer all the risk of debt from the bank to bondholders

Credit Suisse Group’s London offices on March 20. (Jason Alden/Bloomberg News)
5 min

Troubled bank Credit Suisse will be acquired by Swiss rival UBS, a move engineered by the Swiss government in an effort to quell concerns of a financial crisis. While the takeover offered a momentary reprieve for bank industry observers, one aspect of the deal was, on its face, confounding: The Swiss government said that some $17 billion worth of Credit Suisse bonds would get marked down to zero, meaning their holders would lose all of their investment.

But these were not ordinary bonds. Designed in the wake of the Great Recession, these were issued precisely to give banks like Credit Suisse a financial cushion in the event of a severe setback. But holders of the bonds — regarded as extremely risky investments — were still angry about winding up with nothing, while Credit Suisse shareholders received shares in UBS.

Here’s what we know about the “CoCo” bonds and what their evaporation may mean for the banking sector.