No Credit Suisse CDS trigger, says industry body

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Christopher Whittall

A last-ditch attempt to trigger credit default swap contracts on Credit Suisse has failed after an industry body ruled on Wednesday that a so-called credit event has not occurred on the troubled Swiss lender.

The Credit Derivatives Determinations Committee, a group of banks and investment funds that rules on CDS market matters, voted unanimously against a trigger on Credit Suisse’s subordinated CDS following the wipeout of US$17bn in the bank’s Additional Tier 1 debt earlier this year as part of its emergency rescue by UBS.

Hedge funds including Diameter Capital and FourSixThree Capital had bought CDS that would pay out if the Committee ruled in favour of a CDS trigger, Bloomberg reported last week. Many CDS experts had labelled the trade a long shot that would nevertheless have had far-reaching implications for bank CDS and capital markets if it succeeded.

A potential CDS trigger hinged, among other things, on whether Credit Suisse’s AT1 bonds were subordinate or not to a £250m slug of Tier 2 debt previously issued by the Swiss lender and which had matured in 2020. The Committee decided that those 2020 bonds were “priority creditors” in relation to the AT1 bonds, meaning that the writedown of the AT1 bonds could not trigger Credit Suisse's sub CDS contracts.