Finance
Credit Suisse bondholders sue Switzerland over $17 billion in AT1 destruction
Credit Suisse Group AG headquarters in Zurich, Switzerland, on Thursday, August 31, 2023.
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A group of Credit Suisse bondholders have filed a lawsuit against the Swiss government, demanding full compensation for the controversial decision to write off the failed bank’s Additional Tier 1 (AT1) debt.
As part of Credit Suisse’s distress sale to UBS Last year, orchestrated by the Swiss government, Swiss regulator Finma wiped out and zeroed out roughly $17 billion of the bank’s AT1s.
The bank’s common shareholders received payouts when the sale was completed.
The move angered bondholders and would have upended the usual European hierarchy of restitution in the event of a bank failure under the post-financial crisis Basel III framework, which generally places AT1 bondholders above equity investors.
Law firm Quinn Emanuel Urquhart & Sullivan, which represents the plaintiffs, said On Thursday, it announced it had filed a lawsuit in the U.S. District Court for the Southern District of New York. It described Switzerland’s decision to write down the claimants’ AT1 value to zero as “an unlawful infringement of the property rights of the AT1 bondholders.”
A spokesperson for the Swiss Finance Ministry declined to comment.
Finma previously defended its decision to instruct Credit Suisse to write down its AT1 bonds in March last year as a ‘viability event’.
“Through its actions, Switzerland unnecessarily wiped out $17 billion in AT1 instruments, unlawfully violating the proprietary rights of the holders of those instruments,” Dennis Hranitzky, partner and head of Quinn Emanuel’s Sovereign Litigation practice, said in a statement .
The face value of the AT1 bonds held by the plaintiffs in the lawsuit was more than $82 million. Reuters reported thiswith reference to the file.
This photo taken on March 24, 2023 in Geneva shows a sign of the Credit Suisse bank.
Fabrice Coffrini | AFP | Getty Images
AT1s are bank bonds that are considered a relatively risky form of junior debt. They date from the aftermath of the 2008 global financial crisis, when regulators sought to shift risk away from taxpayers and increase the capital of 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.
