On Thursday, August 31, 2023, Credit Suisse Group AG is headquartered in Zurich, Switzerland.
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A group of Credit Suisse bondholders have filed a lawsuit against the Swiss government, seeking full compensation over a controversial decision to write down the failed bank’s additional level one (AT1) debt.
As part of Credit Suisse’s emergency sale UBS Last year, Swiss regulator Finma, orchestrated by the Swiss government, destroyed about $17 billion of the bank’s AT1, writing it down to zero.
Upon completion of the sale, the bank’s common shareholders received payment.
The move angered bondholders and was seen as upending Europe’s usual compensation hierarchy in the event of bank failures under the post-financial crisis Basel III framework, which typically places AT1 bondholders above equity investors.
Quinn Emanuel Urquhart & Sullivan LLP, representing the plaintiffs, explain The company filed a lawsuit in the U.S. District Court for the Southern District of New York on Thursday. It described Switzerland’s decision to write down the value of plaintiff AT1 to zero as “an unlawful infringement of the property rights of AT1 bondholders”.
A spokesman for the Swiss Finance Ministry declined to comment.
Finma had previously defended its decision last March to instruct Credit Suisse to write down its AT1 bonds, calling it a “survival event”.
Dennis Hranitzky, partner and leader of Quinn Emanuel’s sovereign litigation practice, said in a statement: “Through its actions, Switzerland needlessly erased $17 billion worth of AT1 instruments. Justly violates the property rights of the holders of these instruments.
The face value of AT1 bonds held by the plaintiff in the lawsuit exceeds US$82 million. Reuters reportsciting this document.
This photo taken in Geneva on March 24, 2023 shows the Credit Suisse bank logo.
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AT1s are bank bonds and are considered a relatively risky junior form of 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 attributes of AT1 bonds is that they are designed to absorb losses. This happens automatically when the capital ratio falls below a previously agreed threshold and AT1 is converted into equity.
—CNBC’s Sophie Kiderlin contributed to this report.
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