Retail investors flock to join Credit Suisse bondholder lawsuit

Bankers leave the stage after the Credit Suisse annual shareholders' meeting in Zurich on April 4, 2023. © Keystone / Michael Buholzer

Retail investors from the US, UK, Middle East and Asia have joined the landmark $4.5 billion (CHF4 billion) institutional bondholder lawsuit against the Swiss government over its role in the forced takeover of Credit Suisse by UBS last month.

Quinn Emanuel, the law firm that filed a case against the Swiss regulator Finma last week, has partnered with five other specialist law firms around the world to sign on “thousands” of smaller retail investors to the litigation who were also burned by the takeover.

Finma shocked debt markets when it ordered that CHF16 billion ($17.9 billion) of subordinated Credit Suisse bonds be completely wiped out as a condition of UBS’s rescue of its rival in mid-March, even while preserving some value for shareholders in the bank.

The bonds, known as additional tier one (AT1) or contingent capital bonds, were designed to be sold to sophisticated institutional investors.

+ Credit Suisse bondholders sue Swiss regulator over bond wipe-out

Swiss authorities have insisted that the instruments were wiped out in a manner exactly as anticipated in their design. The instruments, which became popular among banks after the 2008-09 financial crisis, contain contractual provisions that allow for a regulator to write down their value if an issuer’s balance sheet is under stress and certain triggers are hit.

The Swiss government initially stressed that the debt instruments had only been sold to big professional investors who knew what they were doing. But in recent weeks it has become increasingly clear that small retail investors were also big holders of the AT1 bonds.

“The unlawful action of Finma has had devastating consequences on thousands of retail and small investors globally,” said Dennis Hranitzky, head of Quinn Emanuel’s sovereign litigation practice.

+ How the Swiss ‘trinity’ forced UBS to save Credit Suisse

“While the headlines to date have focused on larger institutional holders, it is important to recognise the impact this has had on the savings of many individual investors who have been unlawfully deprived of their property rights and deserve justice,” Hranitzky added.

Quinn Emanuel said it was working with Wollmuth Maher & Deutsch in the US, Keidan Harrison in the US, Engelin Teh in Singapore, Global Advocacy and Legal Counsel across the Gulf states and Geissbühler Weber & Partners in Switzerland to represent small investors.

Finma said it declined to comment on the lawsuit. A spokesperson said the regulator had already made public a detailed justification for its actions.

A second deadline for investors to join Quinn Emanuel’s lawsuit in Switzerland — one of the single largest-ever bondholder actions against a sovereign authority — is fast approaching.

Quinn Emanuel has told investors that it has until next Wednesday to file a second suit on behalf of additional plaintiffs, based on a 30-working-day limit on appeals in Switzerland against regulatory decisions.

Many in the Swiss legal community regard any appeal against Finma as a long shot. But Quinn Emanuel says it has a chance to overturn the regulator’s ruling on constitutional grounds of the need for proportionality and due process.

Any successful case will depend heavily on a process of discovery in the coming months, however. The Swiss government has tightly protected disclosures around the frantic 72 hours of decision-making that preceded Credit Suisse’s takeover.

At the least, Quinn Emanuel hopes to use the court in St Gallen where it has filed its complaint to force the government to reveal the nature of its decision-making, which might provide fertile material for further legal action.

A potential parliamentary commission, with wide-ranging powers of subpoena and the ability to override Swiss government rules on official secrets, may also provide ammunition for the litigants.

Swiss parliamentarians will vote on whether to establish the commission when they meet next month.

Copyright The Financial Times Limited 2023