LONDON, March 20 (Reuters) - Derivatives that track the
value of key bank debt fell sharply on Monday, after UBS agreed to rescue rival Credit Suisse , forcing
a massive writedown of the latter's additional tier-one debt as
part of the deal.
Invesco's AT1 Capital Bond exchange-traded fund ,
which tracks the value of AT1 debt, dropped 14% in early
trading, while WisdomnTree's AT1 CoCo bond ETF was
indicated 3% lower.
Additional tier-one bonds, known as AT1s, are a type of
contingent convertible debt that make up part of the capital
buffers that regulators require banks to hold to protect
themselves in times of market turmoil.
If a bank's capital levels fall below a set threshold,
AT1s can either be converted into equity or are written off, as
they were in the case of Credit Suisse, which had to write off
around $16 billion worth.
(Reporting by Amanda Cooper; Editing by Dhara Ranasinghe)
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