The headquarters of Credit Suisse Group AG in Zurich, Switzerland, on Thursday, August 31, 2023.
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A group of Credit Suisse bondholders filed a lawsuit against the Swiss government, demanding full compensation for the controversial decision to write off the insolvent bank’s AT1 (Additional Tier 1) debt.
As part of the emergency sale of Credit Suisse UBS Last year, at the initiative of the Swiss government, Swiss regulator Finma destroyed around $17 billion of the bank’s AT1 bonds, writing them down to zero.
The bank’s common shareholders received payouts after the sale was completed.
The move angered bondholders and appeared to upend the usual European hierarchy of reimbursement in the event of a bank failure under the post-financial crisis Basel III framework, which typically puts AT1 bondholders above equity investors.
The law firm Quinn Emanuel Urquhart & Sullivan, which represents the plaintiffs, said Thursday it has filed the lawsuit in the U.S. District Court for the Southern District of New York. Switzerland’s decision to write down the plaintiffs’ AT1 value to zero was described as an “unlawful interference with the property rights of the AT1 bondholders.”
A spokesman for the Swiss Finance Ministry declined to comment.
Finma had previously defended its decision in March last year to order Credit Suisse to write down its AT1 bonds as a “viability event”.
“By its actions, Switzerland needlessly destroyed $17 billion worth of AT1 instruments and thereby unfairly violated the property rights of the holders of those instruments,” said Dennis Hranitzky, partner and head of Quinn Emanuel’s Sovereign Litigation practice, in an explanation.
The face value of the AT1 bonds held by the plaintiffs in the lawsuit was over $82 million, Reuters reported, citing the statement of claim.
This photo taken in Geneva on March 24, 2023 shows a sign of the Credit Suisse bank.
Fabrice Coffrini | AFP | Getty Images
AT1 bonds are bank bonds that are considered a relatively risky form of subordinated debt. They date back to the aftermath of the 2008 global financial crisis, when regulators sought to shift risk away from taxpayers and increase the capital held by financial institutions to protect them from future crises.
One of the key features of AT1 bonds is that they are designed to absorb losses. This happens automatically when the capital ratio falls below the previously agreed threshold and AT1s are converted into equity.
— CNBC’s Sophie Kiderlin contributed to this report.
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2024-06-07 07:23:32
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