Credit Suisse bondholders have sued Switzerland over the decision to wipe out $17 billion (€15.6 billion) of debt when the bank was rescued by its rival UBS last year.
In the first major claim brought in a US court over the takeover, lawyers representing the group accused Switzerland of “unjustly violating the property rights of the holders of those instruments” in orchestrating the deal.
The rescue, which was the most significant bank takeover since the global financial crisis, has spawned more than $9 billion of legal claims in Europe and Asia. While most of the cases have focused on Finma, the Swiss regulator, bondholders have also weighed claims against Switzerland.
The case, which is filed in the Southern District of New York, is brought by law firm Quinn Emanuel Urquhart & Sullivan on behalf of investors holding $80 million of Credit Suisse bonds. Last year it was reported that the firm was drawing up plans for the lawsuit. The plaintiffs are seeking $82.2 million in damages, plus costs and interest, for what they allege was seizure of their rightful property.
The investors held additional tier-one, or AT1, bonds, a form of bank capital that converts into equity or is written down when the lender runs into trouble.
They claimed the Credit Suisse bonds were written down unfairly, especially considering equity investors received $3.3 billion as part of the transaction. They argue the deal was brokered by the Swiss government and the write-down was an unlawful encroachment on their property rights.
“Switzerland abandoned its regulatory role for that of a private investment bank — prioritising national interests over its legal obligations,” said Dennis Hranitzky, partner and head of Quinn Emanuel’s sovereign litigation practice.
“Switzerland disregarded potential alternatives that could have protected the investments of AT1 bondholders in the interest of economic nationalism.”
It is unusual for sovereign states to be sued for expropriation because many nations have reciprocal investment treaties. However, Switzerland is not party to investor state treaties in many of the countries where the AT1 investors reside, mainly in the US.
Quinn Emanuel has a history of dragging nation-states through the courts, most notably Argentina in a long-running legal fight over sovereign bonds that the country issued as part of its post-financial crisis debt restructuring.
Quinn Emanuel won a London High Court case in April last year in which Buenos Aires was ordered to pay more than €1.3 billion to compensate investors for losses on the bonds that were linked to the country’s economic growth.
Argentina had previously paid out $9.3 billion to creditors in 2016 following what was dubbed as the “sovereign debt trial of the century”, triggered by the country defaulting on almost $100 billion in 2001.
Other law firms representing Credit Suisse bondholders have considered filing claims in the US courts to make use of the discovery process where they can get access to documents and internal communications.
The Swiss government did not immediately respond to a request for comment. - Copyright The Financial Times Limited 2024
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Join The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
