These tier one securities (often referred to as hybrids) are a form of regulatory capital that exist to provide an extra buffer to protect depositors from losses. In fact, one of the first questions in the hastily arranged conference call was whether UBS could be sued for treating Credit Suisse shareholders better than hybrid holders (to which the response was that this was entirely the call of regulators).

APīut the total loss for hybrid holders, who have fared even worse than lower ranking equity holders, could have widespread ramifications in already skittish fixed income markets. UBS chairman Colm Kelleher and Swiss Finance Minister Karin Keller-Sutter announce a deal for the banking giant to acquire its smaller rival Credit Suisse.

It is the first live application of the so-called too big to fail regime since the global financial crisis, as capital providers are being forced to contribute to a recapitalisation. One of the most significant aspects is the decision by the Swiss regulator to totally wipe out the value of $US17 billion Credit Suisse’s additional tier one hybrid securities. The shotgun takeover of Credit Suisse by UBS had one overriding objective – to maintain confidence in the global banking system.

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