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Deutsche Bank headquarters on August 13, 2021 in Frankfurt am Main, western Germany. (Armando Babani/AFP/Getty Images)

One of Europe’s leading banks moved quickly Monday to reassure investors it isn’t holding significant quantities of a particularly risky type of bonds issued by Credit Suisse.

Credit Suisse’s “alternative tier one”— or AT1 — bonds were subject to a “complete writedown” of their nominal value of 16 billion Swiss francs ($17 billion) as a condition of the Swiss government’s support for the emergency rescue by UBS.

“Our exposure to Credit Suisse’s AT1s is near zero,” Deutsche Bank said in a statement.

Deutsche Bank had its own share of troubles in the middle of the past decade, but Germany’s biggest bank has rebounded strongly, and last month reported its highest pre-tax profit in 15 years.

Shares in the bank were down 3% on Monday, broadly in line with the wider European banking sector.

Christine Lagarde, president of the European Central Bank, said in a speech Monday afternoon that banks in the euro area had a “very limited exposure” to Credit Suisse, particularly in relation to AT1 bonds.

“We’re not talking billions, we’re talking millions,” she said.

Analysts said the surprise move to wipe out Credit Suisse’s AT1 bondholders had unsettled investors, particularly as shareholders – typically the last in line for a payout when a bank fails – would be receiving something.

EU banking regulators, while welcoming the “comprehensive set of actions” taken Sunday by Swiss authorities, said Monday they would act differently if ever the need arises.

“In particular, common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier One be required to be written down,” the Single Resolution Board (SRB), the European Banking Authority and the European Central Bank said in a joint statement. “This approach has been consistently applied in past cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions.”

Some background: AT1s belong to a type of bank capital known as “contingent convertibles.” They are popular with institutional investors because they often offer a higher yield than other bank debt and corporate bonds with a similar rating. However, their “convertible” nature means they can be written down completely, or swapped for equity if a bank gets into distress.



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