A group of Credit Suisse investors who lost bonds worth more than 4.5 billion Swiss francs (£4 billion) are suing Switzerland’s financial regulator over a decision to eliminate risky bank debt after an emergency merger. with UBS last month.
The investors filed their lawsuit in a court in St Gallen, northeastern Switzerland, weeks after Swiss authorities staged the takeover of Credit Suisse by its biggest rival, UBS, to try to stem a crisis of confidence in the global banking sector.
The bondholders are represented by the law firm Quinn Emanuel Urquhart & Sullivan, which said it had assembled a “multi-jurisdictional team of lawyers” from across Switzerland, the United States and the United Kingdom.
They are challenging the decision by the Swiss Financial Market Supervisory Authority (Finma) to trigger a “full writedown” of the value of all of the bank’s so-called AT1 bonds as part of the UBS acquisition.
As a result, Credit Suisse bondholders lost a total of 16 billion Swiss francs in bank debt, contrary to conventional rules that generally mean that equity investors, those who hold shares, are wiped out before their peer holders. of debt.
Thomas Werlen, managing partner of Quinn Emanuel in Switzerland, said: “Finma’s decision undermines international confidence in the legal certainty and reliability of the Swiss financial center. We are committed to rectifying this decision, which will not only benefit our clients, but will also strengthen Switzerland’s position as a key jurisdiction in the global financial system.”
Typically, when a company fails, bondholders rank above shareholders in the pecking order of creditors in terms of recoveries that can be paid. However, the value of AT1 bonds was wiped out entirely as a result of the UBS deal, while Credit Suisse shareholders significantly reduced the value of their shares.
The unusual move triggered a sell-off in the AT1 bond market as investors feared the conventions would be scrapped if other banks ran into trouble.
Central banks in other jurisdictions, including the UK and the eurozone, were subsequently forced to issue statements reassuring investors that the Swiss decision would not set a precedent and that their jurisdictions would follow a hierarchy in which shareholders would lose out to the bondholders.
Richard East, senior partner at Quinn Emanuel’s London office, said the lawsuit against Finma was “the first in a series of steps” the law firm would take to seek redress for its clients who “had been unlawfully deprived of their property rights”.
Finma previously said that AT1 bond contracts allow redemptions in some cases, even when there is extraordinary government support. He has said that the government’s decision to provide emergency liquidity for the deal through the Swiss National Bank also gave the financial regulator the authority to write down the debt.
A Finma spokesman declined to comment on the lawsuit. Credit Suisse also declined to comment.