“Credit Suisse’s AT1 Bonds: Lessons Learned from the Financial Crisis and Losses in Japan”

Swiss financial giant “Credit Suisse” fell into financial crisis and was bought out. In Japan, celebrities and companies have suffered huge losses as corporate bonds with a complicated structure called “AT1 bonds” have become worthless. Investing comes with risks, but now that the Japanese government is urging the general public to “shift from savings to investment,” the fire is not on the opposite side of the river. The lesson to be learned from this is— (Takuya Kishimoto)

◆ Koei Tecmo posted a loss of 4.1 billion yen “the biggest stain”

“(The loss) is twice as much as the average annual income of a Japanese office worker. It’s tough.” Susumu Hara, the coach of the Aoyama Gakuin Continental Athletic Club, who is known as a great Hakone Ekiden coach, revealed in an online program in April that all the AT1 bonds of Credit that he purchased from a Japanese securities company had turned into “waste paper.” He said he deliberately made his loss public so that others would not make the same mistake.

Among companies, Koei Tecmo Holdings, which handles game development, posted a loss of 4.1 billion yen in the fiscal year ending March 2023. At an earnings conference in late April, Keiko Erikawa, chairman of the company’s asset management, summed it up as “the biggest blemish” in her investment career, according to Bloomberg News.

A high annual interest rate of nearly 10% … but there is a clause that sets the value to zero

It all started with Credit’s management instability. On March 19, the Swiss government, which spearheaded the rescue acquisition by UBS, announced that the value of approximately 16 billion Swiss francs (approximately 2.3 trillion yen) of AT1 bonds issued by Credit would be zero. The bonds held by Hara and others suddenly became worthless.

AT1 bonds are also called perpetual subordinated bonds. The priority of repayment when the issuing financial institution goes bankrupt is inferior to deposits and ordinary corporate bonds, but the interest rate is high and has gained popularity among investors. In the case of Credit, it issued at an annual interest rate of nearly 10% in 2022.

Credit’s AT1 bonds have a unique clause that renders them worthless if they receive management support from the government, which was applied in this case. Meanwhile, existing Credit shareholders were allotted UBS shares, avoiding a total loss. Bonds are typically paid in preference to stocks, and investors around the world who lost big on AT1 bonds have sued the Swiss financial authority.

◆ “Don’t get involved in something you don’t understand”

In Japan, about 140 billion yen was sold through securities companies, mainly to wealthy individuals and corporations. Mitsubishi UFJ Morgan Stanley Securities sold 95 billion yen, or two-thirds of it, mainly to the wealthy.

Finance Minister Shunichi Suzuki said, “It is not widely sold to domestic general investors,” and shows the view that the impact will be limited. do not have. In recent years, there has been a spate of complaints and consultations about complicated financial products that combine derivatives called “structured bonds.”

The Kishida government has launched a “plan to double asset income,” and will significantly expand the small investment tax exemption system (NISA) from 2024 to encourage people to actively participate in investment. However, economic journalist Hiroko Ogiwara warns, “When investing, you make your own decisions. Don’t dabble in investments where you don’t really know where the risks and responsibilities lie.”

“Many people think it’s okay because it’s recommended by a financial professional, but it’s like a duck carrying a leek on his back and jumping into a pot. Even professionals are salesmen. There is also the speculation that they want to raise the stock price by letting the people invest.There is no product that has a good yield and is sure to make money.When considering asset management, after studying on your own, the first priority is not to let the asset decrease. About