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Over $17.3 billion worth of bonds issued by the struggling Credit Suisse bank has become worthless overnight after rival UBS Group AG pitched in with the takeover bid. Under the takeover deal, UBS will be writing down the bank's additional tier 1 (AT1) bonds to increase core capital. 

Swiss regulator FINMA informed that these bonds, often regarded as risky investments will be written to zero. The move, however, has angered the bondholders who have lost all of their investment while the shareholders still receive payouts as part of the takeover. 

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“The extraordinary government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around 16 billion [Swiss francs],” said FINMA. 

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Experts have dubbed it as the largest loss inflicted on AT1 investors after the particular asset class was introduced post the 2008 global financial crisis. 

The AT1 bonds were primarily created for the failing banks to absorb losses, thereby reducing the chances of a taxpayer-funded bailout. Because of the higher risks, the AT1 bonds provided a greater yield than most other bonds and they became a quick favourite of institutional investors.

Most AT1 bondholders across Europe are now seriously reconsidering their investments, having been rattled by the Credit Suisse saga. Many fear that their holdings will be obliterated if another bank collapses, which looks highly likely given the current market scenario. 

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Notably, on Sunday, Swiss National Bank (SNB) announced that UBS Group had agreed to buy its troubled rival Credit Suisse for $3.25 billion. The takeover is aimed at preventing economic turmoil from spreading throughout the country and beyond. 

Like UBS, Credit Suisse was one of 30 worldwide systemically important banks. This means that the bank was deemed of such vital importance to the global banking system that it was called "too big to fail". 

(With inputs from agencies)

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