Swiss regulator seeks to block investors from accessing Credit Suisse AT1 files

KEYSTONE/© KEYSTONE / URS FLUEELER

Move comes as authorities face $9 billion in legal claims over rescue of failed bank.

Switzerland’s financial regulator has attempted to block the release of key documents to investors who are suing it after $17 billion of bonds were wiped out in the rescue of Credit Suisse.

The bank’s state-ordered takeover by UBS last year has led to at least $9 billion of legal claims, largely related to the decision by Swiss regulator Finma to write down billions of dollars of Credit Suisse debt to zero.

The investors owned additional tier 1 bonds, or AT1s, a form of bank debt that can be converted into equity or written down when a bank runs into trouble.

But bondholders claim conditions for wiping out the debt were not met by authorities, who were instead intent on ensuring Swiss taxpayers were not left financially exposed to the rescue.

As part of their claim, the investors have requested the disclosure of documents related to Finma’s decision, as well as Credit Suisse staff bonuses linked to the bonds called contingent capital awards.

Finma, however, has claimed releasing the files would undermine confidence in it and strengthen potential legal claims against the Swiss state, according to a letter the regulator wrote last month to the Swiss Federal Administrative Court in St Gallen, where the case is being heard.

“The transmission of confidential procedural documents to the plaintiff could permanently undermine the confidence of those subject to Finma in the confidentiality of the information they share with Finma and thus seriously undermine Finma’s supervisory activities,” the regulator argued in the letter, a copy of which was seen by the Financial Times.

Finma’s decision to force losses on bondholders while allowing Credit Suisse shareholders to receive a small amount for their stock upended the traditional capital hierarchy and has proved the most controversial part of the rescue.

Finma has argued that without writing down the AT1s, nationalising Credit Suisse would have been the only alternative.

The bondholders — many of whom are international fund managers — have also been angered by a Swiss court decision to compel individual claimants to pay administrative fees even though they are pursuing their legal action as part of a group.

“This of course is a joke in any civilised country, but the Swiss authorities seem to enjoy these petty tactics of frustration,” one claimant told the FT.

The claimants had expected court administration fees to be charged at a group level, but last month were told each bondholder would be required to pay separate fees based on the value of the AT1s they owned.

These range from CHF200 for claimants holding up to CHF10,000 of bonds to more than CHF15,000 for those owning more than SFr5mn, according to documents seen by the FT. Lawyers had challenged the charging structure, but the St Gallen court rejected the appeal.

The claims against Finma in the court in St Gallen are being organised by international law firms including Quinn Emanuel and London-based Pallas.

In addition to the legal action in St Gallen, several law firms are building claims against the Swiss state that would be heard in international arbitration courts.

These are based on investment treaties that Switzerland has with more than 120 countries that were designed to protect domestic investors from the risk of governments expropriating assets through nationalisation.

But owners of AT1 bonds in countries including Japan, China, Singapore and South Korea have seized on the treaties to prepare lawsuits against Switzerland over the state’s role in wiping out Credit Suisse debt.

In its letter to the St Gallen court, Finma warned disclosing documents could help foreign investors build their cases against the Swiss state.

“This would greatly increase the risk of uncontrolled circulation of the procedural documents and that these documents would be used against the Swiss Confederation or the bank [Credit Suisse] in arbitration and civil proceedings, circumventing the procedural rules applicable to civil proceedings,” the letter stated.

In a statement to the FT, Finma said it had submitted more than 100 detailed consultations to the St Gallen court.

“Finma is presenting its position on the AT1 writedown in court. It is not conducting the numerous appeal proceedings through the media,” it added.

The St Gallen court said it “generally charges an advance payment to cover costs in the amount of the estimated procedural costs in the event of an appeal. The procedural costs consist of the court fee and the expenses.”

Copyright The Financial Times Limited 2024