Connect with us

Finance

Bondholders of Credit Suisse take Switzerland to U.S. court over $17 billion AT1 debt writedown

Published

on

A group of Credit Suisse bondholders has filed a lawsuit against the Swiss government, seeking full compensation for the write-down of the failed bank’s Additional Tier 1 (AT1) debt. The write-down was part of Credit Suisse’s emergency sale to UBS last year, orchestrated by the Swiss government, which wiped out roughly $17 billion of the bank’s AT1s. The move angered bondholders who felt their property rights were violated and that the decision upended the typical hierarchy of restitution in the event of a bank failure under Basel III framework.

Law firm Quinn Emanuel Urquhart & Sullivan, representing the plaintiffs, filed the lawsuit in the U.S. District Court for the Southern District of New York. They described Switzerland’s decision to write down the AT1 bonds as an unlawful encroachment on the property rights of the bondholders. The Swiss Finance Ministry declined to comment on the matter, and Finma defended its decision by calling it a “viability event.” The face value of the AT1 bonds held by the plaintiffs in the suit was over $82 million, with the plaintiffs seeking full compensation.

AT1 bonds are a risky form of junior debt dating back to the aftermath of the 2008 financial crisis. Regulators introduced them to shift risk away from taxpayers and increase capital held by financial institutions to protect them against future crises. One key attribute of AT1 bonds is that they are designed to absorb losses automatically when the capital ratio falls below a certain threshold, with the bonds being converted into equity. The decision to write down the AT1 bonds of Credit Suisse is seen as a violation of the rights of bondholders, and the lawsuit aims to seek full compensation for the losses incurred.

The lawsuit filed by Credit Suisse bondholders against the Swiss government highlights the contentious issue surrounding the write-down of the failed bank’s AT1 debt. The decision to wipe out roughly $17 billion of the bank’s AT1s as part of an emergency sale to UBS orchestrated by the Swiss government has angered bondholders and disrupted the usual hierarchy of restitution in the event of a bank failure under the Basel III framework. The plaintiffs, represented by law firm Quinn Emanuel Urquhart & Sullivan, are seeking full compensation for the write-down, which they believe violated their property rights and caused unjust losses.

AT1 bonds, a relatively risky form of junior debt, were introduced in the aftermath of the 2008 financial crisis to protect financial institutions against future crises. These bonds are designed to absorb losses automatically when the capital ratio falls below a certain threshold, with the bonds being converted into equity. The decision to write down Credit Suisse’s AT1 bonds is seen as an unlawful encroachment on the property rights of bondholders, and the lawsuit aims to hold the Swiss government accountable for the losses incurred by the plaintiffs. The face value of the AT1 bonds held by the plaintiffs in the suit was over $82 million, with the plaintiffs seeking full compensation for their losses.

The lawsuit filed by Credit Suisse bondholders against the Swiss government over the write-down of the bank’s AT1 debt reflects the ongoing dispute over the treatment of bondholders in the event of a bank failure. The decision to write down $17 billion of the bank’s AT1 bonds as part of an emergency sale to UBS orchestrated by the Swiss government has sparked controversy and legal action. The plaintiffs, represented by law firm Quinn Emanuel Urquhart & Sullivan, argue that the write-down violated their property rights and unjustly wiped out their investments. The lawsuit filed in the U.S. District Court for the Southern District of New York seeks full compensation for the losses incurred by the bondholders.

In conclusion, the lawsuit filed by Credit Suisse bondholders against the Swiss government over the write-down of the bank’s AT1 debt underscores the legal and financial implications of the decision. The dispute highlights the challenges faced by bondholders in the event of a bank failure and the need for clarity and accountability in the treatment of various stakeholders. The plaintiffs, represented by law firm Quinn Emanuel Urquhart & Sullivan, are seeking full compensation for the losses incurred as a result of the write-down, which they believe violated their property rights. The outcome of the lawsuit will likely have significant implications for the future treatment of bondholders in similar situations and the overall stability of the financial system.

Advertisement
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Advertisement
Advertisement

Trending