Investors holding about $1.7bn of Credit Suisse bonds that were written down after the bank’s shotgun marriage to UBS have emerged as another group suing Switzerland’s banking regulator, ratcheting up the legal fight following the emergency rescue.
Pallas, a law firm representing two groups of Credit Suisse bondholders in Switzerland, said on Tuesday that it had filed legal action against Finma on April 18 over an emergency ordinance that prioritised shareholders over additional tier one (AT1) bondholders.
Pallas has been instructed to pursue compensation on behalf of about 90 institutional investors and asset managers holding more than $1.35bn in AT1 bonds and about 700 retail and family offices holding approximately $300mn.
The latest suit means that investors representing up to a third of the $17bn in AT1s issued by Credit Suisse have now launched legal action.
It comes after the bondholders were wiped out by the emergency takeover brokered by Swiss regulators in March, while shareholders were handed $3.25bn in UBS shares in an apparent reversal of debt recovery norms.
AT1s are a class of debt designed to take losses when institutions run into trouble but are generally believed to rank ahead of equity on the balance sheet.
Pallas said on Tuesday that Finma had no authority to issue an emergency ordinance that affected the writedown of the bonds, adding that the ordinance should be invalidated and the AT1 notes restated. Partner Natasha Harrison said the Swiss administrative courts would be asked to consider whether Finma’s actions constituted a violation of bondholders’ property rights.
“We are working with a significant number of AT1 investors to execute a multi-jurisdictional litigation strategy to secure compensation and redress for our clients. The purported writedown of the AT1s was unlawful, and our clients must be fully compensated,” she said.
“Finma didn’t have the authority to issue the order to write down the bonds; this was an abuse of process and the resolution procedure should not be used by Switzerland to enable UBS to take over Credit Suisse to the detriment of AT1 holders,” she added.
The legal action is just one line of battle being waged by investors over the fallout from Credit Suisse’s dramatic unravelling. A separate group of bondholders, represented by law firm Quinn Emanuel Urquhart & Sullivan, filed their own legal challenge against Finma last month.
Pallas is working with Swiss lawyers Tomas Poledna and Urs Saxer and has engaged Swiss firm Lalive to advise on contractual and capital markets law in relation to potential legal action against Credit Suisse and UBS.
Harrison is already fighting litigation against Credit Suisse on behalf of bondholders suing the bank over Mozambique’s $2bn “tuna bonds” scandal. She is also representing investors in the Swiss bank’s Greensill-linked supply chain finance funds in a class-action lawsuit against Credit Suisse.
Credit Suisse said last week that efforts to reclaim investors’ money in the funds lent by Greensill could take until 2031.
Lalive was involved in recruiting Swiss claimants for the Greensill lawsuit, while the Geneva firm has also acted on behalf of former Georgian prime minister Bidzina Ivanishvili in his long-running dispute with the bank.
