After A Contentious $17 Billion Write-Down, Credit Suisse Bondholders Are Preparing A Lawsuit

A number of Credit Suisse's additional tier-one bonds (AT1) have been wiped out as part of the bank's emergency sale to UBS on Tuesday after $17 billion of the AT1 bonds of the bank were wiped out as a result of the sale.

‍

According to an announcement made by Swiss regulator FINMA on Sunday, those AT1 securities were written down to zero, meaning bondholders will receive payouts as part of the takeover, angering bondholders who were hoping to avoid the risk.

‍

He envisioned that "probably most bondholders" will join the suit, including Axiom Alternative Investments chief investment officer David Benamou.

‍

It was announced Monday that Quinn Emanuel Urquhart & Sullivan had put together the multi-jurisdictional group of Swiss, U.S., and U.K. lawyers.

‍

“The team at Credit Suisse has already been in talks with many holders of the AT1 capital instruments issued by Credit Suisse, making up a significant share of the total notional value of Credit Suisse’s AT1 capital instruments. They are currently discussing what legal actions, if any, they may have in light of the announcement of a merger between Credit Suisse and UBS,” the firm stated.

‍

After Spanish bank Banco Popular was sold to Banco Santander for one euro in 2017, the firm previously represented bondholders following this transaction which included writing down AT1s to zero as a result.

‍

Earlier this week, the firm said that it was going to convene a conference call for bondholders on Wednesday to discuss what possibilities there are for redress.

‍

Is Credit Suisse in trouble?

‍

The AT1s, also known as contingent convertible notes (CoCos), would normally receive priority over equity holders in the event of a bank failure, as the AT1s are known as contingent convertible notes.

‍

There are many reasons why the AT1 bonds were introduced after the Global Financial Crisis. By creating the bonds, the risk of a financial crisis was diverted from taxpayers and the Credit Suisse write-down is the largest loss allotted to AT1 investors so far.

‍

At the same time, there have been criticisms of Swiss authorities with regard to their decision to damage confidence in the asset class by upending long-established norms and penalizing AT1 bondholders over equity investors, potentially resulting in global market turmoil as a result of this decision

‍

A joint statement issued by the European Banking Authority (EBA), the European Banking Supervisory Authority (ECB), and the Single Resolution Board (SRB) on Monday is intended to reassure investors that the Credit Suisse deal is a one-time deal. As Switzerland is not a member of the European Union, it does not have to comply with any of its regulations.

‍

It was reported that the EU authorities insisted that the first types of instruments to absorb losses are common equity instruments and that the Additional Tier 1 would only be required to be written down after the common equity instruments have absorbed losses to a full extent.