One of the elements in the takeunder by UBS of Credit Suisse was that CHF 16 billion (about $17.3 billion) in CoCo bonds got wiped out totally, while shareholders got wiped out only almost totally. Swiss regulator FINMA, when announcing the deal on Sunday, said that CoCo bonds would be written down to zero, in a sense subordinating bondholders to shareholders, which is like a total no-no very-bad-boy thing to do, because normally, shareholders would get totally wiped out first, and then bond holders would start taking their turn.

Turns out, there were some clauses in the documents of the CoCo bonds, issued in Switzerland, that allowed this under certain conditions and triggers. But no one ever reads any clauses, and so it came as a surprise, shaking up the $275 billion market for these creatures that came out of the swamp of the Financial Crisis

Credit Swiss has been teetering on the brink for years. It has been hobbling from scandal to scandal, each time losing billions of francs along the way, and each time, its shares got beaten to a new record low. And all along the way, new investors were bamboozled into investing billions of dollars in this thing to boost its capital and keep it alive. And the money just vanished. The culture of risk-taking and doing shady deals was something that could apparently not be changed by the CEOs that came and went. Or they didn’t want to change it – despite rhetoric to the contrary – because they were focused on boosting the share price or whatever. The SNB wouldn’t let it collapse, and regulators didn’t force it to straighten out. But a lot of losses to the Swiss public and investors could have been avoided if this creature had been taken out the back and shot years ago.

Total Wipeout of $17 billion in Credit Suisse AT1 CoCo Bonds Shocked Because No One Reads Clauses Anymore? | Wolf Street