Credit Suisse investors sue Swiss financial regulators for UBS takeover, ‘decision undermines confidence’
1 min read 21 Apr 2023, 07:11 PM ISTThe case was filed on behalf of investors holding over 4.5 billion Swiss francs ($5 billion) in the higher-risk bonds.
PremiumA group of investors of Credit Suisse has filed a lawsuit against Swiss financial regulators following a takeover of the bank by UBS that left them with substantial losses. The investors are challenging the decision by the Swiss Financial Market Supervisory Authority (FINMA) to eliminate about 16 billion Swiss francs ($17.3 billion) in higher-risk Credit Suisse bonds as part of an emergency rescue. The deal, which was valued at $3.25 billion, saved Switzerland's second-largest bank from collapse, as its stock fell and customers rushed to withdraw their funds amid fears of Credit Suisse's long-standing problems and the global financial system's instability following the collapse of two US banks.
Law firm Quinn Emanuel Urquhart & Sullivan filed the complaint on behalf of investors holding over 4.5 billion Swiss francs ($5 billion) in the higher-risk bonds.
“FINMA's decision undermines international confidence in the legal certainty and reliability of the Swiss financial center," said Thomas Werlen, managing partner in Switzerland for law firm Quinn Emanuel Urquhart & Sullivan.
"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," Werlen said in a prepared statement Friday.
What did FINMA say?
FINMA declined to comment on the lawsuit but defended its decision to wipe out bondholders. It states that, typically, shareholders face losses before bondholders if a bank goes under. In the aftermath of the 2008 financial crisis, European financial regulators introduced a special type of bond designed to provide a capital cushion to banks in times of distress. However, these bonds are structured to be written down if a bank's capital falls below a certain level.
Swiss regulators have argued that contracts for Credit Suisse's so-called Additional Tier 1 (AT1) bonds show that they can be written down in a "viability event," particularly if the government offers exceptional support. This happened when the Swiss executive branch passed emergency measures providing billions in guarantees for the deal and allowed regulators to order a writedown of the bonds. The emergency rescue plan enabled the government to push through the deal without shareholder approval.
Regulators have called the takeover the "best option" that posed the least risk of causing a broader crisis and harming Switzerland's standing as a financial center.
(With inputs from agencies)
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