Credit Suisse Bondholders Seek Redress for Their Wiped-Out Debt

A group of Credit Suisse bondholders representing billions of dollars in high-risk debt that was wiped out in the bank’s rescue takeover by rival UBS are suing Switzerland’s banking regulator, their lawyers said Friday.

Swiss authorities required that 16 billion Swiss francs ($17.9 billion) in so-called additional tier 1 (AT1) bonds be rendered worthless in the mega-merger of Switzerland’s two biggest banks, announced last month.

The order by the Swiss Financial Market Supervisory Authority (FINMA) infuriated bondholders, who are typically better protected than shareholders.

But in this case, shareholders were not fully wiped out in the deal, though they did see the value of their holdings shrink drastically in the $3.25 billion takeover.

Lawyers for a group of Swiss and international investors collectively representing more than a quarter of the wiped-out debt — worth 4.5 billion Swiss francs — have now taken legal action against FINMA over that move.

The law firm Quinn Emanuel filed a formal complaint on Tuesday at the Federal Administrative Court in St. Gallen in northeastern Switzerland, a spokesperson told AFP.

“The bondholders are challenging the legality of FINMA’s decision leading to the alleged write-down of the AT1 bonds,” a firm said in a statement.

“FINMA’s decision undermines international confidence in the legal certainty and reliability of the Swiss financial centre,” the firm’s managing partner in Switzerland, Thomas Werlen, said in the statement.

“We are committed to rectifying this decision, which is not only in the interests of our clients but will also strengthen Switzerland’s position as a key jurisdiction in the global financial system,” he said.

Richard East, a senior partner at Quinn Emanuel’s London office, said that Tuesday’s filing was only “the first in a series of steps we will be taking to seek redress for our clients who have been unlawfully deprived of their property rights.”

A number of other lawsuits over the AT1 bond wipeout decision are also reportedly pending in Switzerland and abroad.

AT1 bonds were created following the 2008 global financial crisis to put the burden of losses on investors instead of taxpayers.

Also known as CoCo, or contingent convertible bonds, they are a high-return investment but banks can suspend interest payments or convert them into bank shares in times of trouble.

But Swiss authorities ordered that the Credit Suisse AT1s be written down altogether as part of the UBS deal.

For their part, shareholders will get some three billion Swiss francs, or 0.76 francs per share — much lower than their closing price of 1.86 francs before the deal was announced.

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