Credit Suisse Group AG headquarters in Zurich, Switzerland, on Thursday, August 31, 2023.
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A group of Credit Suisse bondholders have filed a lawsuit against the Swiss government, seeking full compensation for the controversial decision to write off the failed bank’s Additional Tier 1 (AT1) debt.
As part of Credit Suisse’s emergency sale of YBS Last year, orchestrated by the Swiss government, Swiss regulator Finma wiped out about $17 billion of bank AT1, reducing it to zero.
Shareholders of the bank’s common stock received distributions upon completion of the sale.
The move angered bondholders and was seen to upend the usual European hierarchy of recovery in the event of a bank failure under the post-financial crisis Basel III Accord, which typically puts AT1 bondholders ahead of equity investors.
The law firm Quinn Emanuel Urquhart & Sullivan, representing the plaintiffs, said The company filed the lawsuit Thursday in the U.S. District Court for the Southern District of New York. He called Switzerland’s decision to write down the value of the plaintiffs’ AT1 to zero “an unlawful attack on the property rights of AT1 bondholders.”
A spokesman for the Swiss Finance Ministry declined to comment.
Finma previously defended its decision to instruct Credit Suisse to write down its AT1 bonds in March last year as a “viability event”.
“Switzerland’s actions wantonly destroyed $17 billion worth of AT1 instruments, unfairly violating the property rights of the holders of those instruments,” Dennis Granitsky, partner and head of Quinn Emanuel’s sovereign litigation practice, said in a statement.
The face value of the AT1 bonds owned by the plaintiffs in the lawsuit was more than $82 million. Reuters reports this.referring to materials.
This photo taken on March 24, 2023 in Geneva shows a Credit Suisse bank sign.
Fabrice Coffrini | AFP | Getty Images
AT1 is a bank bond that is considered a relatively risky form of junior debt. They emerged in the wake of the 2008 global financial crisis, when regulators attempted to shift risk away from taxpayers and increase capital for financial institutions to protect them from future crises.
One of the key properties of AT1 bonds is that they are designed to absorb losses. This occurs automatically when the capital adequacy ratio falls below the previously agreed threshold and AT1 is converted into equity.
— CNBC’s Sophie Kiderlin contributed to this report.