(Yicai Global) March 21 -- Bond prices of Asian banks were largely stable after UBS Group, the world's largest private bank, acquired the embattled Credit Suisse Group, which caused massive losses to the latter's bondholders.

The additional tier-one bond prices of Chinese lenders, including Industrial and Commercial Bank of China, dropped between 0.2 percent and 0.5 percent yesterday, Yicai Global learned.

Priorities have shifted today, an investment manager of an American asset management agency told Yicai Global. The wipeout of Credit Suisse AT1 bonds, also known as contingent convertibles or CoCos, caused losses of nearly USD18 billion to bondholders. The market for CoCo bonds is around EUR270 billion (USD289.2 billion), and most of them are issued by European banks. "I have no idea whether there will be lawsuits against the issuers."

Zurich-headquartered UBS will acquire Credit Suisse for CHF3 billion (USD3.2 billion) in an all-share merger. Consequently, the money will be paid to Credit Suisse’s shareholders while the owners of CHF16 billion (USD17.3 billion) of AT1 bonds will receive nothing, which is an unusual liquidation order.

Regulatory authorities including the European Central Bank and the European Banking Authority said "common equity instruments are the first one to absorb losses, and only after their full use would Additional Tier 1 be required to be written down," per their joint statement issued yesterday.

Asian AT1 bonds rebounded slightly yesterday as investors bought the dip but prices continued falling due to a negative market sentiment after European AT1 bonds opened for trading, a bond analyst at a European investment bank said to Yicai Global.

UBS AT1 bonds declined by 12 to 18 percent as of yesterday afternoon. Those of European banks fell by 7 to 14 percent, and Hong Kong banks’ AT1 bonds slid by 10 percent. Such notes of Singaporean banks fell by 1 to 2 percent yesterday. Among Chinese banks, US-denominated notes of ICBC, Bank of Communications, and Bank of China declined less than 0.5 percent.

Credit Suisse's AT1 bondholders are multinational asset management giants and insurers, including BlackRock, PIMCO, Invesco, Teachers Insurance and Annuity Association-College Retirement Equities Fund, the Vanguard Group, and Allianz, accordion to public data.

But investors are not out of the woods yet. The threshold for the Federal Reserve to stop hiking or even lower interest rates is still very high, and financial risks in Western countries will last, so investors must not let down their guard, Zhao Wenli, chief strategist on Hong Kong stocks at CCB International, said to Yicai Global.

It is likely that the Fed will adjust its quantitative tightening policies as well as adjust regular and targeted liquidity supplement tools to stabilize the financial system while raising interest rates slightly or maintaining restrictive rates to control inflation, Zhao added.

Editor: Emmi Laine, Xiao Yi