A day that started with a blunt call to investors ended with incredulous fund managers at Algebris Investments facing double-digit losses. It was March 20, and the Swiss government had just taken the unprecedented decision to wipe out $17.3 billion of junior debt as part of a forced merger between Credit Suisse Group AG and UBS Group AG.
The move set off a global slump in the price of additional tier 1 bonds, as the riskiest banking debt is known, with some forecasting that it would serve as a death knell for the entire asset class. As one of the world’s top buyers of AT1s, Algebris needed to talk to its investors. On the call, CEO Davide Serra laid the blame on Switzerland, saying that the country would become a pariah in the bond market for what it had done.
