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Bondholders In US Sue Switzerland Over Credit Suisse AT1 Write-Down

Tom Burroughes

7 June 2024

Credit Suisse bondholders holding a total of $82 million of the stricken bank’s Additional Tier 1 debt, which was wiped out in UBS's takeover of its rival, have sued the Swiss authorities.

The takeover, sometimes branded a “shotgun wedding,” was at the behest of the Swiss federal government in March 2023.

US court filings showed that the plaintiffs, represented by international law firm Quinn Emanuel Urquhart & Sullivan, have filed against the Swiss Confederation, in the US District Court for the Southern District of New York.

“Switzerland’s direction to write-down the plaintiffs AT1's value to zero as part of the sale of Credit Suisse to UBS, was an unlawful encroachment on the property rights of the AT1 bondholders,” the firm, which focuses only on litigation cases, said in a statement yesterday.

A report by Reuters said the Swiss finance ministry declined to comment.

In the spring of last year, Credit Suisse collapsed amidst a string of missteps and scandals. A UBS rescue took place and, as part of the transaction, holders of the AT1 debt, a kind of “shock absorber” form of capital used by European banks since the 2008 financial crash, had their holdings wiped out. About $17 billion of AT1 bonds were written down.

A few days ago, UBS announced that it had completed its acquisition of Credit Suisse. The purchase of a systemically important bank leaves the Alpine state with one universal bank – a possible cause for concern in the long run.

In the immediate aftermath of the UBS/Credit Suisse merger last year, there were numerous reports of investment houses, such as PIMCO, considering lawsuits over the AT1 write-downs.

In its statement, Quinn Emanuel Urquhart & Sullivan said: “Eschewing its regulatory role, Switzerland adopted the role of an investment bank brokering the sale of a distressed bank, choosing the only remaining major Swiss bank, UBS, to buy Credit Suisse without considering potential buyers.

“After eliminating any competitors in the process, to make the takeover as attractive as possible to UBS, Switzerland bargained away $17.3 billion of Credit Suisse’s outstanding AT1s – ordering Credit Suisse to write them down to zero – unnecessarily and in plain violation of the investors’ rights.

“The resulting complete loss of the plaintiffs' investments in the AT1s entitles them to the face value of the AT1s as damages for Switzerland’s write-down. The lawsuit was filed in New York, where the plaintiffs' AT1s were registered, cleared, and ultimately rendered worthless,” it concluded.

Dennis Hranitzky, partner and head of the law firm’s sovereign litigation practice, commented: “In orchestrating the sale of Credit Suisse to UBS without considering any other bidders, Switzerland abandoned its regulatory role for that of a private investment bank – prioritizing national interests over its legal obligations. Switzerland disregarded potential alternatives that could have protected the investments of AT1 bondholders in the interest of economic nationalism.”