Switzerland sued by Credit Suisse bondholders

Further lawsuits concerning the former bank are being considered. Keystone/Michael Buholzer

Following the takeover of Credit Suisse by UBS, Credit Suisse AT1 bondholders are taking action against Switzerland. They have filed a class action lawsuit against the Swiss Confederation in a district court in New York, they announced on Thursday.

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The plaintiffs are challenging the order issued by the Swiss Financial Market Supervisory Authority (FINMA) on March 19, 2023, in connection with the emergency rescue of Credit Suisse by UBS, in which FINMA ordered Credit Suisse’s AT1 bonds to be written down to zero. “By issuing this order, Switzerland unlawfully interfered with the property rights of the plaintiffs,” according to the complaint by the group of plaintiffs.

The Swiss government brokered the sale of Credit Suisse, which had run into difficulties, and selected UBS as the only remaining major Swiss bank. The plaintiffs argued that Switzerland had thus distanced itself from its role as a financial market regulator and acted as a private investment bank, prioritising national interests over legal obligations.

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

“In doing so, Switzerland disregarded other potential buyers. In addition, and in order to make the acquisition as attractive as possible for UBS, Switzerland extinguished Credit Suisse’s outstanding AT1 bonds totalling approximately $17.3 billion (CHF15.3 billion). This was unnecessary and violated the rights of the plaintiffs,” the plaintiffs wrote in a statement.

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

The plaintiffs are claiming the nominal value of the AT1 bonds as damages from Switzerland. The lawsuit was filed in New York, where the plaintiffs’ AT1 bonds were registered, liquidated and ultimately became worthless. Specifically, the class action was filed in the District Court for the Southern District of New York, according to the statement. The plaintiffs are represented by the US law firm Quinn Emanuel Urquhart & Sullivan.

FINMA considers action justified

AT1 bonds (AT1) are subordinate bonds that were created in the wake of the 2008 financial crisis to protect banks in financial difficulties from collapse. They are counted as part of a bank’s core capital. The debt securities can be converted into equity and amortised. On March 19, 2023, FINMA declared that an event had occurred with the assistance provided by the public sector to Credit Suisse that justified such action.

+ Read more: retail investors join Credit Suisse bondholder lawsuit

The FINMA ruling caused quite a stir. Three months ago, the supervisory body wrote to the Federal Administrative Court to defend itself against the publication of confidential documents, which representatives of the bond investors had demanded to be disclosed. According to FINMA’s letter to the court, the disclosure of confidential procedural documents to the complainants could shake confidence in FINMA and thus cause damage to its supervisory activities.

Justice systems abroad are also looking into the case. According to media reports, law firms from various Asian countries intend to file lawsuits against the Swiss state before international arbitration tribunals. Class action lawsuits are also being brought in the United States.

Adapted from German by DeepL/kc/sb

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