Credit Suisse bondholders sue Switzerland in the U.S. over $17 billion writedown of AT1 debt

A
group
of
Credit
Suisse
bondholders
filed
a
lawsuit
against
the
Swiss
government,
seeking
full
compensation
over
the

contentious
decision
to
write
down
the
failed
bank’s
Additional
Tier
1
(AT1)
debt.

As
part
of
Credit
Suisse’s

emergency
sale
to


UBS
last
year,
which
was
orchestrated
by
the
Swiss
government,
Swiss
regulator
Finma
wiped
out
roughly
$17
billion
of
the
bank’s
AT1s,
writing
them
down
to
to
zero.

The
bank’s
common
shareholders
received
payouts
when
the
sale
was
completed.

The
move

angered
bondholders
and
was
seen
to
have

upended
the
usual
European
hierarchy
of
restitution
in
the
event
of
a
bank
failure
under
the
post-financial
crisis
Basel
III
framework,
which
typically
places
AT1
bondholders
above
stock
investors.

Law
firm
Quinn
Emanuel
Urquhart
&
Sullivan,
which
represents
the
plaintiffs,

said
Thursday
that
it
had
filed
a
lawsuit
in
the
U.S.
District
Court
for
the
Southern
District
of
New
York.
It
described
Switzerland’s
decision
to
write
down
the
plaintiffs’
AT1
value
to
zero
as
“an
unlawful
encroachment
on
the
property
rights
of
the
AT1
Bondholders.”

A
spokesperson
for
the
Swiss
Finance
Ministry
declined
to
comment.

Finma
previously
defended
its
decision
to
instruct
Credit
Suisse
to
write
down
its
AT1
bonds
in
March
last
year
as
a
“viability
event.”

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

The
face
value
of
the
AT1
bonds
held
by
the
plaintiffs
in
the
suit
was
over
$82
million,

Reuters
reported,
citing
the
filing.

AT1s
are
bank
bonds
that
are

considered
a
relatively
risky
form
of
junior
debt.
They
date
back
to
the
aftermath
of
the
2008
global
financial
crisis,
when
regulators
tried
to
shift
risk
away
from
taxpayers
and
increase
the
capital
held
by
financial
institutions
to
protect
them
against
future
crises.

One
of
the
key
attributes
of
AT1
bonds
is
that
they
are
designed
to
absorb
losses.
This
happens
automatically
when
the
capital
ratio
falls
below
the
previously
agreed
threshold,
and
AT1s
are
converted
into
equity.

—
CNBC’s
Sophie
Kiderlin
contributed
to
this
report.