Jonathan Stempel
(Reuters) – A new lawsuit by U.S. hedge fund Appaloosa LP accuses the former Credit Suisse of misleading investors about his health before $17 billion of its bonds were written down to zero in a government-sponsored rescue by a Swiss rival. UBS.
In a complaint filed Tuesday in federal court in Newark, New Jersey, Appaloosa said two investors it advised suffered significant losses when their additional Tier 1 bonds were destroyed in March 2023, just a week and a half after how they started shopping.
Appaloosa reported that Credit Suisse CEO Ulrich Kerner falsely stated that liquidity was “very strong” and “getting stronger” even though the bank was suffering from a deposit run, mirroring the deposit run that led to the collapse of Silicon Valley Bank in the same month.
Credit Suisse’s lawsuit accuses Kerner and former chairman Axel Lehmann of “lying to the market about Credit Suisse’s deteriorating liquidity” and seeks unspecified damages under U.S. securities laws and New Jersey racketeering laws.
UBS declined to comment.
A lawyer for Appaloosa and investors Azteca Partners LLC and Palomino Master Ltd did not immediately respond to a request for comment. The plaintiffs reside in Short Hills, New Jersey. Bloomberg reported the lawsuit on Tuesday.
Additional Tier 1 bonds, or AT1 bonds, provide a capital cushion that can support banks during market turmoil.
Although they rank higher in the banks’ capital structure, Swiss financial regulator FINMA was not obliged to pay Credit Suisse AT1 bondholders.
Her decision to seize the bonds while allowing UBS to buy Credit Suisse for $3 billion shocked investors and sparked a slew of lawsuits in the US and Europe.
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In November, UBS raised $3.5 billion in its first AT1 bond sale since buying Credit Suisse.
The case is Palomino Master Ltd et al. v. Credit Suisse Group AG et al., U.S. District Court, District of New Jersey, No. 24-05539.