The Swiss are not helping anyone with these new vehicles designated AT1 Capital Bonds. The AT designation refers to “ABOVE BASLE” implying they are bonds with quasi capital status.

The implication is that investors are purchasing vehicles which are low risk for investors, but hold on there is a fundamental disagreement between the market and the regulator.

Co-co bonds: the investment banker’s devilish new work of art

Luckily, you never really knew the difference between a Co-Co- bond and a cup of sweet chocolaty liquid. So when the Swiss authorities pulled the rug from under the holders of SwF16bn of Credit Suisse AT1 capital bonds, most of us found it difficult to work up much indignation on the part of the holders.

We are promised yet another lawyers’ benefit as those holders try and scrounge something from the wreckage, but the horrible truth is that they failed to understand the small print, even if they had read it.

However there is a host of small print that some lawyers on Bloomberg Surveillance today who understood why otherwise experienced investors were confused and shocked to find their position degraded in the Credit Suisse payout beyond their expectation.

The buyers treated them as bonds, while the regulators, told that they would be automatically converted into shares in a crisis, treated them as equity.

To have this situation occur when the consensus is forming around the next crisis being a hard landing recession driven by Bank risk is not good.

The Bank of England and others have rushed to condemn the shocking sight of the Swiss authorities paying something to the shareholders in Credit Suisse while wiping out the Co-cos. This is not supposed to happen – the shareholders should be completely wiped out first – and, all the other central bankers said, it definitely wouldn’t happen here.