Credit Suisse investors have sued the Swiss Financial Market Supervisory Authority (Finma) after their investments were wiped out during the takeover by UBS.
Investors representing more than CHF 4.5 billion of Credit Suisse bonds have appealed the Swiss financial regulator’s decision to write down CHF 16 billion in AT1 bonds.
Higher-risk Credit Suisse bonds were wiped out as part of a government-orchestrated emergency rescue plan to allow UBS to take over the struggling bank in March.
The CHF 3 billion deal prevented the downfall of Switzerland’s second largest bank as customers withdrew money following the collapses of Silicon Valley Bank and Signature Bank.
The deal is also set to create one of the largest asset managers in Europe with a combined asset management unit which will see $1.5 trillion in assets under management.
Law firm Quinn Emanuel Urquhart & Sullivan filed the lawsuit on behalf of bondholders against Finma in the Federal Administrative Court in St. Gallen.
Lawyers have argued the government withheld information, such as why the UBS buyout was the only possible option and what negotiations occurred to convince UBS to participate.
The law firm has also contested the regulator’s decision to only offer compensation to shareholders and also claims that considerations were not done proportionally, which is a violation of Swiss law.
Thomas Werlen, managing partner of the law firm, said: “Finma’s decision undermines international confidence in the legal certainty and reliability of the Swiss financial centre.”
However, Finma has defended its decision to wipe out the debt as shareholders typically face losses before those holding bonds during a bank collapse.
The regulator said the contracts for AT1 instruments show they can be written down in a “viability event”, particularly if government support is required.
Regulators have also called the takeover “the best option” to prevent a wider crisis from occurring and damaging Switzerland’s reputation as a financial centre.
The takeover of Credit Suisse by UBS has faced further scrutiny as the Swiss federal prosecutor has opened an investigation into the deal.
© 2023 funds europe
