Asian investors have filed lawsuits against the Swiss government. They joined a landmark international lawsuits series over UBS's takeover of Credit Suisse bank. Well, Swiss authorities directed the Credit Suisse bank to join a merger with UBS due to fears of a collapse. The merger rendered about $17bn of investors’ bonds worthless. Generally, companies sell bonds to raise investors' funds by paying back with interest over time.
Credit Suisse sold such bonds as convertibles, contingent or AT1 bonds. The bonds have higher returns but are one of the riskiest options for investors. In simple terms, banks can write down this type of bonds in dire situations. The event occurred when UBS took over Credit Suisse. Finma (the Swiss financial regulator) said in March that it met the contractual requirements to write down the bonds. But they have not commented on the lawsuit.
Overall, Finma explained that they could wipe out the AT1 bond in a Viability Event like the extraordinary liquidity support the Swiss government granted Credit Suisse on 19th March. Thousands of retail investors worldwide and several bondholders in Singapore have challenged the Swiss officials in court. In any case, lawyers say inquiries over the case are overwhelming. Most bondholders’ charges challenge the mode of the banks’ merger.
The core of their legal claims is who the bank would prioritize during a collapse. Terms of bonds indicated that shareholders would receive compensation after bondholders. Nonetheless, shareholders only exchanged their shares with Credit Suisse for UBS shares at a lower value. The bondholders’ legal team claims that the decision from Swiss regulators was unlawful. Thus, it has resulted in devastating impacts on several small and retail investors worldwide.
In other words, bondholders lost value via several irregular administrative decisions. An Asian-based investor looking forward to retiring in a year lost their life savings due to the move. Meanwhile, investors remained unhappy with Credit Suisse's reassurances despite the current turmoil in the banking sector. Other investors complained that ads from Credit Suisse by as late as 14th March encouraged them to buy bonds.
In general, it was on 14th March that Saudi investors announced they would halt the bank's financial assistance since it faced a 25% drop in shares. Although Credit Suisse did not comment on the lawsuits, they said the Swiss authorities’ circuit breakers to trigger bond write-offs were far away. Above all, legal experts doubt whether lawsuits from investors would succeed. But since Swiss law has a limited period for submission of claims, now is the best chance.
