(Bloomberg) — A day that started with a blunt call to investors ended with incredulous fund managers at Algebris Investments facing double-digit losses. It was March 20, and the Swiss government had just taken the unprecedented decision to wipe out $17.3 billion of junior debt as part of a forced merger between Credit Suisse Group AG and UBS Group AG.The move set off a global slump in the price of additional tier 1 bonds, as the riskiest banking debt is known, with some forecasting that it would serve as a death knell for the entire asset class. As one of the world’s top buyers of AT1s, Algebris needed to talk to its investors. On the call, CEO Davide Serra laid the blame on Switzerland, saying that the country would become a pariah in the bond market for what it had done.Fast forward eight months and the picture couldn’t look more different. Algebris’s biggest fund is on track for its best annual return since 2020, while many of the investors who warned the AT1 sector wouldn’t survive are now rushing to get their hands on the bonds. Once again, Switzerland is at the center of the dramatic turn in events after UBS sold a batch of AT1 bonds earlier this month that received tens of billions of dollars in orders. The issuance blitz that followed was the biggest in almost a decade, according to data compiled by Bloomberg. “Everyone was wrong on the death of the AT1 market,” Algebris Chief Investment Officer Sebastiano Pirro said in an interview. “In the end, Credit Suisse’s failure will likely make more money for our investors over five years than we would have otherwise, as we never thought we could get new issues from strong names at yields of more than 9%.”
