Swiss financial regulators are facing a lawsuit from a group of Credit Suisse investors, who have suffered substantial losses following a government-engineered takeover of the struggling bank by rival UBS. The investors are challenging an order by the Swiss Financial Market Supervisory Authority (FINMA) that eliminated approximately 16 billion Swiss francs ($17.3 billion) in higher-risk Credit Suisse bonds as part of an emergency rescue plan announced last month. The deal, worth $3.25 billion, was arranged hastily and prevented the downfall of Switzerland’s second-largest bank, which faced stock market declines and a run on customer deposits due to longstanding issues at the bank and the global financial system’s turmoil after the collapse of two US banks. On Friday, lawyers representing the investors said that FINMA’s decision undermines the Swiss financial center’s legal certainty and reliability, damaging international confidence in it. Thomas Werlen, managing partner in Switzerland for global law firm Quinn Emanuel Urquhart & Sullivan, expressed this sentiment.
The firm filed the lawsuit in Swiss federal court Wednesday on behalf of investors holding more than 4.5 billion Swiss francs ($5 billion) in the higher-risk bonds. It’s one of several complaints underway in Switzerland following the bond losses.
In a statement released on Friday, Thomas Werlen, managing partner for Quinn Emanuel Urquhart & Sullivan in Switzerland, declared his commitment to rectify the decision to eliminate Credit Suisse bonds, which he believes is in the best interest of clients and will also reinforce Switzerland’s position as a significant jurisdiction in the global financial system. Although the shareholders usually face losses before bondholders if a bank collapses, those with Credit Suisse stocks will collectively receive 3 billion Swiss francs ($3.3 billion) in the merged company.

After the 2008 financial crisis, European financial regulators began using Additional Tier 1 (AT1) bonds, a type of bond designed to provide capital protection to banks during times of distress. However, these bonds are intended to be wiped out if a bank’s capital falls below a specific level. Swiss regulators have argued that the contracts for these bonds issued by Credit Suisse stipulate that they could be written down during a “viability event,” particularly if the government provides extraordinary support.
After the Swiss executive branch introduced emergency measures that provided billions in guarantees for the deal and permitted regulators to demand a writedown of the bonds, FINMA said the move triggered a large number of complaints to the Federal Administrative Court in Switzerland. According to spokesman Andreas Notter, there will likely be a substantial number of complaints, with each having several hundred complainants, though the court does not comment on the content of the filings or who filed them.
Despite the fact that the regulators have hailed the takeover as “the best option” that posed the least risk of exacerbating a broader crisis and harming Switzerland’s status as a global financial center, the lower house of the Swiss parliament recently passed a symbolic vote criticizing the emergency rescue plan for Credit Suisse after the central bank and government-guaranteed more than 200 billion Swiss francs for the deal. FINMA refused to comment on the matter.
The Toronto House Canada.