Viability event trigger

Most investors who buy AT1 bonds — directly or through a fund — read the yield and skim the trigger. The trigger is the product.

The mechanical trigger is arithmetic. The prospectus names a CET1 ratio threshold; if the bank’s ratio crosses it, the write-down or conversion executes. There is no meeting, no judgement, no appeal to circumstances. This is the trigger the marketing describes, because it feels like a fuse: visible, measurable, and far away as long as the bank reports comfortable capital.

The regulatory trigger is the one that has actually mattered in practice. The supervisor declares the bank non-viable — because it judges that the bank cannot continue without extraordinary support — and the instrument absorbs losses regardless of what the capital ratio says that morning. A bank can sit far above its mechanical threshold and still be declared non-viable, because viability is about funding and confidence, not only capital.

The gap between those two triggers is precisely where the Credit Suisse write-down happened, and the article below covers what followed, including the court ruling. The general lesson survives the specifics: with any instrument that has a discretionary clause, the question is not “how likely is the number to be breached” but “who holds the discretion, and under what pressure will they be using it”.