Bets on Wiped-Out Credit Suisse AT1s Supercharge Invesco ETF
(Bloomberg) — Traders are homing in on a single exchange-traded fund in their bid to qualify for potential compensation from the wiped-out Additional Tier 1 debt of Credit Suisse Group AG.
Invesco’s AT1 Capital Bond ETF recorded its biggest daily inflow in more than three years on Thursday, pushing its assets close to $1.3 billion, the highest level since mid-2023. The fund has jumped 1.2% this week, about double the gains of its benchmark AT1 index, data compiled by Bloomberg show.
Underpinning the rush is a Swiss court ruling that handed partial victory to AT1 bondholders left with nothing after the government-brokered takeover of Credit Suisse by UBS Group AG in 2023, according to two people familiar with the matter who asked not to be named discussing private transactions.
Ever since their wipeout, Credit Suisse AT1s are no longer treated as securities, with coupons to be paid and clauses that UBS needs to abide by. Instead, dealers and investors trade claims on any potential payouts or even the bonds themselves if they ever regain their status as securities.
The ETF still recorded the Credit Suisse bonds as part of its holdings as of Oct. 16, according to Invesco’s disclosures. Listed as “Other Transferable Securities” their percentage of net assets is currently zero. A smaller AT1 ETF is managed by WisdomTree, but it hasn’t seen the same level of investor interest as Invesco’s since the court decision.
It’s not clear whether all holders of the ETF will be eligible for any potential compensation or how it would be distributed.
“No value can currently be attributed to the legacy AT1 position” when calculating the ETF’s net asset value, Invesco said in its latest accounts for the fund as of June 30. That may change, however, if “the ability to realise value becomes more certain,” it said.
Investors’ hopes are high: prices on claims tied to Credit Suisse’s defunct AT1s more than doubled after the court ruling.
The decision has breathed fresh life into the claims, which number in the hundreds. However, the decree has for now only been revoked — not reversed — and so the timing for any compensation, or who would have to pay it, remains unclear.
The trade using the ETF is seen as a more straightforward bet than dealing in the niche market for claims to any potential compensation.
The Swiss banking watchdog, Finma, is appealing the court decision.
Representatives at Invesco declined to comment.
(Updates with Invesco representative no comment in final paragraph.)
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