Explained: Why Credit Suisse share price is in a tailspin despite historic rescue deal

Credit Suisse share price: The stock of Credit Suisse continued to take heavy blows in the market on Monday, even after UBS agreed to buy the troubled Swiss lender for about $3.2 billion in a move that sent positive signals to financial stocks across the globe. The Credit Suisse stock still appears to be in a tailspin, though its historic bailout has brought a much-needed sigh of relief to the banking stock-faithful bulls in major stock markets. 

However, the owners of the bank's low-rated bonds are the ones who are left carrying the bag. Experts find the decision of the Swiss authorities — that bondholders will get nothing — to be really strange.

Here's a lowdown on the latest in the Credit Suisse crisis and its last-minute bailout:

Credit Suisse share price: How much has the stock fallen?  

In the latest market riot, Credit Suisse shares have lost almost two-thirds of their value in three days. 

On Monday, The UBS stock closed 1.26 per cent higher at 17.32 Swiss francs apiece, while the shares of Credit Suisse nosedived 55.74 per cent to 0.82 Swiss franc apiece.

CHART POSSIBLE?

As per the deal between UBS and Credit Suisse, the shareholders of Credit Suisse will get one UBS share for every 22.48 shares of common stock. Early on Monday, the last-minute rescue failed to soothe people down, and bank stock prices were heavily pressured all morning. UBS fell 12 per cent in early trade, outperforming its remaining regional counterparts in losses.

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Credit Suisse-UBS deal: What's in it for the humble bond holder?

"Credit Suisse and UBS entered into a merger agreement on Sunday, 19 March following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank, and the Swiss Financial Market Supervisory Authority. UBS will be the surviving entity upon closing of the merger transaction," Credit Suisse said in a press release.

The Swiss regulator unexpectedly mandated "a complete write-down" of the value of Credit Suisse's CHF16 billion in contingent convertible bonds (CoCos), often known as extra tier one (AT1) bonds. This indicates that bondholders will be left with nothing. In a bankruptcy proceeding, stockholders often have a lesser priority than bondholders, although, under the agreement, they will still be entitled to receive 40% of the most recent share price. So, this is kind of an odd settlement in UBS case as the bank did not follow a traditional bankruptcy.

The lowest rung of bank debt is AT1 bonds. These are risky investments that pay off handsomely when everything goes right, but they are also built to take the brunt of the blow when a bank runs into problems.

The rationale for the losses suffered by Credit Suisse may be disputed. A group of attorneys from the Los Angeles-based litigation firm Quinn Emanuel Urquhart & Sullivan announced on Monday that they were conferring with the holders of Credit Suisse's AT1 bonds about their options.

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