The panel that oversees the credit-default swap market, the Credit Derivatives Determinations Committees, will discuss whether there’s a so-called successor to Credit Suisse Group AG’s contracts.
With Credit Suisse’s takeover by UBS Group now finalized, the panel received a question earlier on Monday, and will deliberate the issue on Tuesday at 2:00 p.m. in London, according to a statement on the CDDC’s website. If the panel rules that there is a successor, then UBS may become the new reference entity for Credit Suisse’s swaps, but the contracts won’t be triggered.
Click here for a QuickTake explainer on the CDDC.
The completion of the deal comes almost three months after a crisis of confidence forced the Swiss government to broker the sale of Credit Suisse and prevent broader contagion spreading to the financial markets. Earlier Monday, UBS announced that it would assume Credit Suisse’s outstanding debt as its own from June 12.
Investors betting on such a succession event occurring SOLD credit default swaps on Credit Suisse’s debt, earning relatively high premiums, while buying protection on UBS’s obligations, paying a relatively low premium, in the expectation the swaps contracts of both banks would converge.
The question asked to the panel pertains to the both the senior and subordinated contracts. Credit Suisse’s five-year senior contracts were indicated at 107 basis points as of 1:00 p.m. in London, according to ICE Services data. UBS’ equivalent swaps were indicated at 106.6 basis points.
Read more: Hedge Funds Amp Up CDS Antics on Credit Suisse Demise
Last month, the panel ruled twice against triggering a payout on Credit Suisse’s CDS following the wipeout of $17 billion additional tier 1 bonds and the UBS takeover. The net notional volume of Credit Suisse’s swaps outstanding amounted to $1.74 billion as of May 12, according to data from the Depository Trust & Clearing Corporation.
--With assistance from Bruce Douglas.
