The bondholders of Credit Suisse have instigated a lawsuit against the Swiss government, following its decision to eliminate $17 billion (€15.6 billion) in debt amid the bank’s rescue by competitor UBS last year.
This significant legal action was initiated in a US court over the takeover, with the litigating group’s representation accusing Switzerland of unjustly infringing on the property rights of those holding the instruments, as part of their orchestration of the agreement.
The rescue, a landmark takeover since the worldwide fiscal crisis, has resulted in over $9 billion of European and Asian legal claims. A significant number of cases target the Swiss regulator, Finma, however, the bondholders have also directed claims towards the Swiss government.
The litigation, filed in New York’s Southern District, has been launched by the law firm Quinn Emanuel Urquhart & Sullivan, representing investors with Credit Suisse bonds amounting to $80 million. Last year, reports revealed that the firm was planning this lawsuit. The claimants are seeking damages of $82.2 million, along with costs and interest, alleging that their rightful property was wrongfully seized.
Interestingly, the investors held additional tier one (AT1) bonds, a type of bank capital that is either converted into equity or written down when the bank faces difficulty. The claimants argue that it was unreasonable to write down Credit Suisse bonds while equity investors received $3.3 billion as part of the deal. They blame the Swiss government for brokering the deal and believe this write-down was a wrongful breach of their property rights.
Dennis Hranitzky, a partner at Quinn Emanuel’s sovereign litigation practice, emphasised that Switzerland prioritised its national interests above legal obligations by abandoning its regulatory role and behaving more like a private investment bank.
Furthermore, he criticised Switzerland’s disregard for potential alternatives that might have safeguarded the AT1 bondholders’ investments for economic nationalism.
Unusually, sovereign states are facing a lawsuit for expropriation, despite many nations having mutual investment treaties. However, many of the AT1 investors, primarily from the US, live in countries where Switzerland isn’t part of investor-state treaties. This situation is a common scenario for Quinn Emanuel, which is historically known for subjecting nations to court proceedings, famously including Argentina over its post-financial crisis debt renegotiations.
In April of the previous year, the London High Court ruled in favour of Quinn Emanuel, decreeing Buenos Aires to recompense investors over €1.3 billion due to losses affiliated with bonds and the nation’s economy. This followed closely the case tagged “sovereign debt trial of the century” in 2016 when Argentina disbursed $9.3 billion to creditors subsequent to a massive debt default on nearly $100 billion in 2001. In the meantime, other legal firms representing Credit Suisse bondholders are contemplating filing legal suits in US courts to exploit the discovery process, allowing the procurement of essential documents and internal communications. No comment was received in relation to the request directed at the Swiss government. Copyright The Financial Times Limited 2024.