Dozens more investors sue over €17bn Credit Suisse debt wipeout

View of Switzerland's financial centre in Zurich. Keystone / Michael Buholzer

Dozens of new investors have joined a lawsuit against Switzerland over the wipeout of €17 billion ($17.5 billion) of Credit Suisse debt, arguing that the government “folded to virtually all of UBS’s demands” when it orchestrated the rescue takeover of the bank.

In an amended complaint filed in New York on Wednesday, 39 plaintiffs were added to the lawsuit, taking the total value of the claim to more than $370 million, up from $82 million when the case was originally filed in June with eight claimants.

A majority of the new plaintiffs are individual funds run by US asset manager AllianceBernstein, while a subsidiary of Japanese lender Nomura is also named in the lawsuit, according to court documents.

The Financial Times reported last month that AllianceBernstein, which manages about $800 billion in assets, was preparing to join the claim, which is being brought by law firm Quinn Emanuel Urquhart & Sullivan.

The government’s decision to wipe out the AT1 bonds has divided the market, with some arguing that the owners were sophisticated investors who should have been aware that the bonds could be written down. However, lawyers acting for the plaintiffs said retail investors and people saving for retirement had also been hit.

Dennis Hranitzky, partner and head of Quinn Emanuel’s sovereign litigation practice, said the AT1 write down had affected a “diverse spectrum of investors, including retail investors and individuals saving for their retirement through institutionally managed 401k and pension plans”.

+ Credit Suisse AT1 bondholders who lost $1.7 billion in UBS deal file lawsuits

The amended filing comes after a political inquiry in Switzerland last month shed new light on how the government and regulators arranged the emergency takeover.

A parliamentary commission criticised the country’s financial regulator FINMA but concluded that the bank’s failure was caused by “years of mismanagement” at Credit Suisse.

Lawyers representing the Credit Suisse bondholders are now trying to use details in the 569-page report to bolster its case against Switzerland.

In the amended complaint, Quinn Emanuel alleged that Switzerland “folded to virtually all of UBS’s demands”, including wiping out Credit Suisse’s AT1 bonds.

“Eschewing its regulatory role and instead assuming the role of an investment bank brokering the sale of a distressed bank, Switzerland cherry-picked the only remaining major Swiss bank, UBS, to buy Credit Suisse without considering any other potential buyers,” the complaint said.

“Switzerland then allowed UBS to dictate its own terms for the acquisition, which included Switzerland wiping out the AT1s — unnecessarily and in plain violation of the investors’ rights,” it added.

+ Read more: retail investors join Credit Suisse bondholder lawsuit

AT1, or additional tier one, bonds are a form of bank capital that converts into equity or is written down when a bank runs into trouble. Following UBS’s takeover, Credit Suisse’s AT1 bondholders were wiped out, while equity investors recovered $3.3 billion.

The Swiss government, which is being represented by law firm Wachtell, Lipton, Rosen & Katz, last month filed a motion to dismiss the initial Quinn Emanuel complaint. It argued that, as a foreign state, it was entitled to sovereign immunity from the lawsuit and that the dispute should be adjudicated in a Swiss court.

It is expected to file a new motion to dismiss the amended claim in the coming weeks, according to a person familiar with the matter.

Lawyers representing the Swiss Confederation did not respond to a request for comment. UBS declined to comment.

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