Law firm pursuing restitution for clients whose holdings went under following Credit Suisse's deal with UBS
After suffering enormous losses as a result of the government-engineered purchase of the faltering bank by rival UBS, a group of Credit Suisse investors have filed a lawsuit against the Swiss financial authorities.
According to an Associate Press report, attorneys said that investors are fighting a decision by the Swiss Financial Market Supervisory Authority (FINMA) that eliminated higher-risk Credit Suisse bonds worth $17.3 billion in 16 billion Swiss francs as part of an emergency bailout last month. The $3.25 billion transaction saved Switzerland's second-largest bank from failure after its shares dropped and clients fled with their money out of fear of Credit Suisse's ongoing problems and the disruption of the global financial system caused by the failure of two U.S. banks.
“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 global law firm Quinn Emanuel Urquhart & Sullivan.
In order to protect the interests of investors who own bonds with a higher risk of default valued at more than 4.5 billion Swiss francs ($5 billion), the business filed the lawsuit in Swiss federal court on Wednesday. It's one of several grievances being filed in Switzerland as a result of bond losses.
“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 statement Friday.
AP report that FINMA has justified the decision to exclude bondholders, leaving many investors stranded. The terms for Credit Suisse's Additional Tier 1, or AT1, bonds indicate that they might be written down in a "viability event" if the government provides exceptional support, according to Swiss authorities. FINMA stated that this occurred after emergency measures that offered billions in guarantees and permitted regulators to order a writedown of the bonds were approved.
AT1 bonds were created to make sure that, in the event that a bank experiences difficulties, investors will bear the risk, not taxpayers. Since the bailout overturned the long-standing tradition of giving bondholders priority over shareholders in recovering debt, bondholders have begun seeking legal counsel.
Some claims have already been made in Switzerland. Several investors have been trading the notes for pennies on the dollar in what is known as a litigation play, wagering that winning legal arguments could increase values in the future. The court doesn't comment on the documents' authors or their content.
The purchase of Credit Suisse was regarded to be the best choice by regulators since it posed the least threat to a larger crisis and Switzerland's reputation as a major financial hub. The merger, according to FINMA CEO Urban Angehrn, "minimized risk of contagion and maximized trust." Insolvency proceedings against Credit Suisse would have had a "devastating effect" on Swiss private banking.
After the central bank and government spent more than 200 billion Swiss francs on guarantees for the deal, the lower chamber of the Swiss parliament rejected the emergency rescue plan for Credit Suisse last week in a symbolic vote.
