Credit Suisse Investors Challenge Switzerland’s $17 Billion Bond Write-Down A group of creditors have filed legal action against the country’s financial regulator, arguing it violated Swiss law when it wrote down around $17 billion of bank bonds Credit Suisse was taken over by UBS in a government-brokered rescue. PHOTO: PIERRE ALBOUY/REUTERS By Alexander Saeedy and Margot Patrick Updated April 21, 2023 6:22 am ET SAVE PRINT TEXT Credit Suisse Group AG bondholders have launched a legal challenge in Switzerland against regulators’ decision to write down $17 billion in securities as part of UBS Group AG’s rescue of the troubled bank last month. Bondholders holding about 4.5 billion Swiss francs ($5 billion) of Credit Suisse’s canceled debt want the decision to write down their bonds revoked or amended, according to an outline of their appeal made in a Swiss administrative court and reviewed by The Wall Street Journal. The bondholders are alleging the total write-down was disproportionately punitive to them and violated their property rights, according to the summary of the legal filing. The legal action opens a new front in sorting out the financial wreckage from Credit Suisse’s abrupt rescue last month, which has done considerable damage to Switzerland’s reputation for safeguarding wealth. NEWSLETTER SIGN-UP WSJ Pro Bankruptcy Bankruptcy news, analysis and insights from WSJ's global team of reporters and editors. Markets were stunned when Swiss authorities wiped out the $17 billion in Additional Tier 1 bonds as part of UBS’s $3.25 billion purchase of Credit Suisse in March. Typically, shares in a bank would have to be written down entirely before creditors would have to take losses or be bailed in. But Switzerland’s financial regulator, Finma, determined that the debt contractually could be written down in the rescue because the government backstopped UBS’s purchase of Credit Suisse in March. Additionally, Swiss lawmakers gave Finma emergency authority to write down the AT1 bonds on March 19, the day that UBS took over the bank. Shareholders of Credit Suisse are to receive more than $3 billion in UBS shares for their stock in the bank, however. Bondholders bringing claims against the Swiss government allege the bond write-down didn’t serve the purpose of restoring Credit Suisse to financial health and damaged international investors’ trust in Switzerland. “Tuesday’s filing was the first in a series of steps we will be taking to seek redress for our clients who have been unlawfully deprived of their property rights,” said Richard East, a London-based partner with Quinn Emanuel Urquhart & Sullivan LLP, the law firm that filed the Swiss complaint. A Finma spokesman declined to comment. The administrative court where the filing was made received several complaints on the matter, a spokesperson said. A Credit Suisse spokesman declined to comment. The Swiss regulator said last month that the design of the AT1 bonds meant they could be written down before stock was wiped out. If the regulator had put the bank into resolution and recapitalized it, the bank’s equity likely would have been entirely written down before bailing in bonds, according to earlier statements made by the Swiss regulator about its procedures. Regulators created the class of AT1 bonds after the 2008 financial crisis as a type of bank capital, meant to help financial institutions absorb losses in a downturn. AT1 bonds can be converted into common equity or written off in cases of extreme stress, depending on their terms. Sometimes called contingent convertible bonds, or Cocos, the securities surged in popularity in Europe over the past decade as a regulator-approved way to build buffers that could protect banks in times of trouble without having to tap taxpayer funds. For investors, AT1 bonds offered high yields during a decade of low and sometimes negative interest rates, recently paying annual percentage interest rates of mid-to-high single digits. The write-down by Swiss regulators has curbed market demand for AT1 securities across Europe and Asia, even though other national regulators have said they would respect traditional creditor hierarchies ranking bonds ahead of stocks. Banks across Europe and Asia meet their capital requirements with AT1 bonds, which have gotten more expensive for borrowers as investors fear they too could be forced to swallow losses. However, the market is showing signs of reviving. Japan’s Sumitomo Mitsui Financial Group issued $1 billion of AT1 bonds this week, the first major bank to issue this type of bond since the write-down of Credit Suisse’s bonds. The cost of borrowing for banks has started to decrease “on the perception that Credit Suisse was an idiosyncratic case, but the market remains skittish,” wrote CreditSights analysts in a research note this month. “We see more volatility in the short term but a gradual improvement over the long term.” Write to Alexander Saeedy at alexander.saeedy@wsj.com and Margot Patrick at margot.patrick@wsj.com Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8 Appeared in the April 21, 2023, print edition as 'Credit Suisse Investors Challenge Debt Plan.'
at1 is contingent-convertible "bond", not a traditional bond. i think thr at1 holders will get something back but probabaly not at par.