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  • Writer's pictureRealFacts Editorial Team

Legal Clash: Credit Suisse Bondholders vs. Swiss Government Over AT1 Debt Write-Down

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Dennis Hranitzky, partner and head of Quinn Emanuel’s Sovereign Litigation practice, said this week, “Through its actions, Switzerland needlessly wiped out $17 billion in AT1 instruments, unjustly violating the property rights of the holders of those instruments.”

A heated legal clash has erupted between a group of Credit Suisse bondholders and the Swiss government, triggered by the decision to write down the failed bank’s Additional Tier 1 (AT1) debt. Last year, during Credit Suisse’s emergency sale to UBS, facilitated by the Swiss government, regulator Finma executed a write-down of around $17 billion of the bank’s AT1 bonds to zero, resulting in common shareholders receiving payouts upon the sale’s conclusion. This deviation from the customary European hierarchy of restitution in bank failures under the Basel III framework, which typically favors AT1 bondholders over stock investors, sparked frustration among bondholders.

Represented by Quinn Emanuel Urquhart & Sullivan, the plaintiffs have initiated legal proceedings by filing a lawsuit in the U.S. District Court for the Southern District of New York. They argue that Switzerland’s decision to devalue their AT1 bonds to zero infringed on their property rights. While the Swiss Finance Ministry has chosen not to comment on the matter, Finma has defended its action, characterizing it as a “viability event” in March of the preceding year.

The AT1 bonds, serving as a form of junior debt aimed at absorbing losses in financial institutions, have been a regulatory measure since the aftermath of the 2008 global financial crisis. Crafted to fortify financial stability and diminish taxpayer risk, these bonds automatically convert to equity when capital ratios dip below predetermined thresholds. The legal dispute highlights the complex dynamics and tensions surrounding financial regulations and investor rights following significant economic upheavals.


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