LONDON (Reuters) – Credit Suisse is having another dark day on the stock market as its bailout by big rival UBS has raised concerns among investors about the stability of the banking system.

As part of a deal orchestrated by the Swiss authorities, UBS agreed on Sunday to buy Credit Suisse for three billion Swiss francs (3.04 billion euros) with significant support from the Swiss government.

At the close on Friday, the stock market value of the bank still amounted to eight billion dollars (7.51 billion euros). And six months ago, to 13 billion dollars. On the Zurich Stock Exchange, the price of Credit Suisse tumbles in the morning by 57.86% to 0.7838 Swiss francs and that of UBS by 9.29%.

The value of Credit Suisse’s “Additional Tier 1” (AT1) securities – a riskier contingent convertible bond than conventional debt – fell by as much as a penny.

Swiss regulators decided that the value of Credit Suisse’s AT1 securities would fall from 16 billion francs to zero, angering some debt holders who thought they were better protected than shareholders under the agreement between the number one and two in Swiss finance.

Shareholders will receive a total of $3.23 billion in this framework.

“It’s staggering and difficult to understand how they can reverse the pecking order between AT1 holders and shareholders,” said Jerome Legras at Axiom Alternative Investments, an investor in Credit Suisse’s AT1 debt.

Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, points out that the Swiss authorities’ decision will make AT1 securities more expensive for all other banks in the future, because “everyone is now aware of this additional risk”. .

The Stoxx banks index lost 3.49% around 09:34 GMT.

Barclays lowered its advice on European banks from “positive” to “neutral”, citing the likelihood of increased regulatory scrutiny following the collapse of Silicon Valley Bank and the UBS-Credit Suisse deal.

In Paris, Credit Agricole fell by 2.84%, Societe Generale by 5.57% and BNP Paribas by 4.44%. In London, HSBC lost 3.73% and Deutsche Bank fell 6.78% in Frankfurt.

“We believe this writedown of AT1 bonds by a systemically important bank will have negative implications for the European banks AT1 market, as well as for banks’ overall funding profile and cost of capital,” the strategists said. from JPMorgan.

(Amanda Cooper, John Revill and Gdansk office, Laetitia Volga, editing by Kate Entringer and Blandine Hénault)

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