Following the acquisition of Credit Suisse, a major Swiss financial group that had been facing financial instability, by UBS, the Swiss financial authorities announced that certain corporate bonds worth more than 2 trillion yen issued by Credit Suisse would be worthless. Financial markets are increasingly wary of widening losses.

UBS, the largest Swiss financial company, has agreed to acquire Credit Suisse, with a total purchase value of CHF 30 billion, or more than JPY Japan, of more than JPY 4200 billion.

Following this acquisition, the Swiss Financial Market Supervisory Authority announced on the 19th that the corporate bonds called "AT1 bonds" issued by Credit Suisse would become worthless.
That's CHF 160 billion, or Japan yen, equivalent to approximately ¥2.2000 trillion.

AT1 bonds were introduced by banks in preparation for a shortage of capital in response to the fact that large amounts of public funds were used to bail out banks during the Lehman shock in 2008.
In the event of a capital shortage, it can be incorporated into equity.

This time, the financial authorities will make the bonds worthless and increase Credit Suisse's capital.

As a result, financial markets became increasingly cautious about the spread of losses on corporate bonds.

Market participants said that "the movement to sell stocks of financial institutions that issue the same type of corporate bonds in Asia has intensified," and the market remains unstable.

European stock indices fall

European stock markets on the 20th saw bank stocks sell orders due to anxiety over the announcement that some Credit Suisse bonds would be worthless, and stock indices in each country declined.

Stock indices in major markets such as London, Paris and Frankfurt were down about 6.0% as of 5:10 p.m. Japan time.

Among them, the stock price of UBS, the largest Swiss financial company that decided to acquire Credit Suisse, fell sharply by more than <>% at one point.

In European stock markets, stock prices rose temporarily due to the acquisition of Credit Suisse as a bailout and the cooperation of central banks in Japan, the United States, and Europe to expand the supply of dollar funds.

However, following the announcement that some Credit Suisse bonds will be worthless, selling orders have increased.

Stock prices also fall in Asia and Oceania

In the Asian and Oceania stock markets on the 20th, although an agreement to acquire Credit Suisse, a major Swiss financial group, was announced before the start of trading, it did not alleviate investors' concerns, and stock prices fell.

The closing prices of major stock indices in various regions fell 20.2% in Hong Kong compared to
the end of last week, as well as 6.1% in Sydney, Australia, 3.1% in Singapore,

and
3.0% in South Korea.

"Global financial authorities have taken a series of steps to alleviate investors' concerns, but risk aversion has continued with the announcement that some corporate bonds issued by Credit Suisse will be worthless," market participants said.

One night after the announcement of the acquisition, the people of Switzerland

A day after the announcement of the Credit Suisse acquisition, commuters were seen peering into the deserted office and taking pictures in front of Credit Suisse's headquarters in Zurich.

One of them, a woman living in Zurich, said, "It is really shocking for us Swiss people that a large bank that represents the country would fall into such a crisis, and I am really relieved that the same Swiss bank saved us this time."

In addition, a man who had been dissatisfied with the bank's management for a long time was indignant, saying, "It is completely unfair to neglect support for pensioners like me and use tax money like hot water to help banks."

On the other hand, the manager of a parts manufacturer who came from Germany to ask about the state of the bank said, "The most important thing for banks, 'trust,' has been greatly lost. To be honest, I am worried about whether financial markets will continue to calm down."

Expert Q&A What is the background of the acquisition movement and the impact on the Japan economy?

We asked Sayuri Ito, Research Director of Nissay Research Institute, which specializes in European economies, about the background of the acquisition of Credit Suisse and its impact on the Japan economy.

Q.Why did this happen?

Last week, the market seemed to calm down after the Swiss central bank announced that it would support Credit Suisse's financing, but the outflow of money did not stop over the weekend.
In the wake of the successive failures of U.S. banks, market anxiety was rising.
This liquidity crisis was characterized by a very rapid progression that pushed banks into their management.

Q. Why did the Swiss financial authorities rush to respond this weekend?

A. Credit Suisse is an influential financial institution not only in Switzerland but also in the global financial system.
A disorderly bankruptcy could have had a major impact that would suspend the global financial system and halt global transactions.
The Swiss financial authorities also did not want to trigger the global financial crisis, and an orderly restructuring was necessary to minimize the blow.
If this week's trading had started in financial markets without any action taken, considerable turmoil would have been expected, so an unusual measure was taken with the support of the monetary authorities, as it had to be concluded in a short period of time.

Q.What is the impact of the announcement that the value of the AT1 bonds issued by Credit Suisse will be zero?

A.In general, if a financial institution with management problems goes bankrupt, the shareholder who owns the shares bears the loss before the investor who owns the bond.
This time, however, shareholders were not necessarily burdened with zero burden, while investors with AT1 bonds had zero value and were fully burdened.
Until now, AT1 bonds have not been widely considered to actually incur losses as long as they are issued by major financial institutions, but this measure has reaffirmed that they are risky bonds.
As a result, there was turmoil in Asian markets today over the bonds.
This time, as an unusual measure to close the acquisition in a short period of time, some conditions were set to make it easier to acquire Credit Suisse, so I think it was unavoidable, but there is concern that market turmoil over AT1 bond risks will spread to the financial system.

Q. What is the aim of the announcement that six central banks in Japan, the United States, and Europe will work together to expand the supply of dollars to the market?

A. In the international financial system, transactions are centered on the dollar, and at the time of the Lehman shock, financial institutions around the world experienced a shortage of dollars, causing confusion.
Since anxiety is still rampant among financial institutions, we have become very cautious, so it was necessary to alleviate anxiety.
It sends a strong message that central banks around the world will work together to provide enough dollars for financial institutions to need, thereby preventing a crisis caused by a shortage of dollars.

Q. Will the turmoil in financial markets subside?

A. Market anxiety has not been completely dispelled. In the market, it cannot be ruled out that the same situation will happen in the future, as the risk is being reassessed to see if there are any other financial institutions that have the same management problems as Credit Suisse and the banks that failed in the United States.
Monetary authorities in Europe and the United States are expected to continue walking a tightrope for some time, as they are faced with the difficult task of tightening monetary policy to contain inflation while providing ample liquidity in the market to maintain financial system stability.

Q.What is the impact on the Japan economy?

A.Japan financial institutions do not have a special business model that relies on deposits in a specific field as in the United States.
In addition, the environment surrounding financial institutions in Europe and the United States is different from that of Western financial institutions, such as interest rates in Japan Europe and the United States, where interest rates have been raised rapidly compared to those in Europe and the United States, so the risk of capital outflows as in Western financial institutions seems to be low.
However, due to the turmoil of the financial systems in Europe and the United States, the global economy may slow down more than expected Japan and the economy may be affected, so it is necessary to pay close attention.