Anamika Dey, editor
In brief
- A group of bondholders has filed a lawsuit against the Swiss government, seeking full compensation for the decision to write down the failed bank’s Additional Tier 1 (AT1) debt.
- A lawsuit has been filed in the U.S. District Court for the Southern District of New York by law firm Quinn Emanuel Urquhart & Sullivan, who are representing the plaintiffs.
- The spokesperson for the Swiss Finance Ministry chose not to provide any comments.
A group of bondholders has filed a lawsuit against the Swiss government, seeking full compensation for the decision to write down the failed bank’s Additional Tier 1 (AT1) debt.
During Credit Suisse’s emergency sale to UBS last year, the Swiss government orchestrated the process. As a result, Swiss regulator Finma decided to eliminate approximately $17 billion of the bank’s AT1s, reducing their value to zero.
Common shareholders of the bank received payouts upon the completion of the sale.
The decision caused frustration among bondholders and disrupted the established order of restitution in Europe following a bank failure. This goes against the standard Basel III framework, which typically gives AT1 bondholders priority over stock investors.
A lawsuit has been filed by law firm Quinn Emanuel Urquhart & Sullivan, who represent the plaintiffs, in the U.S. District Court for the Southern District of New York, according to a statement released on Thursday. The decision to write down the plaintiffs’ AT1 value to zero in Switzerland was deemed a violation of the property rights of the AT1 bondholders.
The Swiss Finance Ministry spokesperson chose not to provide a comment.
Finma had previously justified its directive to Credit Suisse to write down its AT1 bonds in March last year, citing it as a “viability event.”
“Switzerland’s actions resulted in the unnecessary loss of $17 billion in AT1 instruments, which infringed upon the property rights of the instrument holders,” stated Dennis Hranitzky, partner and head of Quinn Emanuel’s Sovereign Litigation practice.
According to the filing, Reuters reported that the plaintiffs in the suit held AT1 bonds with a face value of over $82 million.
AT1s are bank bonds that are seen as a comparatively risky type of junior debt. These measures were implemented in response to the 2008 global financial crisis, aiming to transfer risk away from taxpayers and bolster the capital reserves of financial institutions as a safeguard against future crises.
AT1 bonds are specifically structured to absorb losses, which is a crucial characteristic. When the capital ratio falls below the agreed threshold, AT1s are automatically converted into equity.
Source : CNBC News
