The wipeout of 16 billion Swiss francs for the owners of Credit Suisse's AT1 bonds is likely to result in legal proceedings. An international law firm has assembled a large group of clients willing to take legal action.
The write-down of Credit Suisse's AT1 bonds on the instruction Swiss Financial Market Supervisory Authority (Finma) in connection with the distressed takeover by UBS has caused a huge outcry. Now, an international team of lawyers from the California-based law firm Quinn Emanuel Urquhart & Sullivan will examine possible legal steps.
Just days after the forced takeover of Credit Suisse by UBS on March 19, the firm arranged a call with AT1 bondholders on March 22. The firm said it already had a team in discussions with several holders of Credit Suisse’s AT1 capital instruments, which represented a significant percentage of the total notional value of those instruments. The call was «about the possible legal actions that may be available to them in light of the announcement of the merger between UBS and Credit Suisse.»
Tremendous Outcry
Since then the firm received more than a thousand e-mails from affected bondholders, according to Thomas Werlen, who is coordinating the proceedings against the Swiss financial market regulator for the US law firm from Switzerland.
With that, the firm has received enough mandates from plaintiffs to file a lawsuit against Finma's decision, according to a report by the «NZZ» (in German, behind paywall). «There was a tremendous outcry,» says Werlen.
Finma's Defense
Finma defended its decision late last week, saying the AT1 instruments, often referred to as CoCo bonds (contingent convertible bonds), issued by Credit Suisse provide a contractual basis that they can be fully written down in a «viability event.» This is particularly true if «extraordinary government support is granted,» as finews.com reported.
Finma said since Credit Suisse was granted extraordinary liquidity support loans secured by a default guarantee from the Swiss government on March 19, these contractual conditions were met for Credit Suisse's AT1 instruments.
On the same day, the Swiss Federal Council enacted an emergency ordinance (PLB-NVO) on additional liquidity assistance loans and the granting of federal default guarantees for liquidity assistance loans of the Swiss National Bank (SNB) to systemically important banks. «The ordinance authorizes Finma to order the borrower and the financial group to write down additional core capital,» it said.
With those conditions fulfilled, Finma, instructed Credit Suisse to write down the AT1 bonds.
Lobby Group Declines to Sue
A week ago, the Credit Roundtable, a lobby group of the largest American and Canadian fixed-income asset managers, declined to take legal action against Credit Suisse related to the write-off, according to a «Reuters» report.
