The fateful decision by Swiss authorities to impose full losses on certain bondholders of failed lender Credit Suisse will make life more difficult for European banks going forward, warned the institute’s former CEO.

In a column published in the Financial Times on Thursday, Tidjane Thiam argued the distressed sale to cross-town rival UBS upended international finance's traditional hierarchy, in which stock owners such as the Saudi National Bank are always the first to lose their shirts when a company fails.

Instead the all-share deal forces investors that bought $17 billion in so-called Additional Tier 1 bonds to take a bath, argued the Ivorian, who served as CEO from 2015 until February 2020. This precedent could prove costly for lenders on the continent by further pushing up their funding costs.

“There is a basic principle that common equity takes the hit first,” he wrote, amid reports that affected bondholders are considering taking legal action.

“It seems that the treatment of AT1s, even if correct under the current Swiss rules, will raise the cost of capital for Swiss banks and European banks. This will have some of their U.S. peers rubbing their hands,” Thiam added.

The market is already pricing in higher capital costs for European banks

The deal values Credit Suisse’s equity at 3 billion Swiss francs ($3.3 billion). While the terms impose heavy losses on shareholders—with the battered stock losing a further two-thirds overnight— investors like the Saudi National Bank that pumped in 1.5 billion francs late last year did not lose everything.

By upending the traditional heirarchy of a bank resolution, bondholders will likely demand a higher return on their investment before subscribing to the next AT1 issue, according to Thiam.

“This new layer of uncertainty will have an adverse impact on the competitiveness of the European banking sector. Net net, U.S. and Asian rivals could come out of all this relatively stronger.