On March 19 2023, FINMA ordered the write down of AT1 bonds worth approximately CHF 16 billion, by far the largest loss imposed in the AT1 debt market to date
WHO WE ARE AND WHY WE WERE SET UP
QUINN EMANUEL IS REPRESENTING THE INTERESTS OF CREDIT SUISSE’S AT1 BONDHOLDERS
AT1 bonds are a capital instrument introduced in the wake of the 2008 financial crisis to build so-called “loss absorbing” capital if a bank has – or runs the imminent risk of having – insufficient capital. Their purpose is to prevent the need for a government bailout.
Throughout the period in which Credit Suisse faced a so-called ‘crisis of confidence’, FINMA, the Swiss government, and Credit Suisse itself consistently stated that Credit Suisse met or exceeded both its capital and liquidity requirements.
The situation appears clear. AT1 bonds – designed to absorb capital losses – were written down to zero despite there being no need to strengthen the bank’s capital at any point. Credit Suisse itself argued that the viability clause used to trigger a write down had not been met.
The Swiss authorities nevertheless decided to compensate Credit Suisse shareholders, but unlawfully wipe out its AT1 bondholders. Quinn Emanuel will hold those responsible for this injustice to account.
COMPELLING REASONS FOR OUR CASE
VIOLATION OF PROPERTY RIGHTS
The write-down of the bonds was neither necessary nor a suitable tool to address the issues Credit Suisse faced. It reversed common sense legal hierarchy and upended global financial markets. Violating the principles of proportionality and good faith, the decision constituted an unlawful encroachment on the property rights of bondholders. It must be corrected.
WIDESPREAD, GLOBAL IMPACT
Contrary to the public comments made by FINMA and the Swiss government, those affected are not just large institutional holders. The minimum trading value of some of Credit Suisse’s AT1 bonds was around CHF 5,000 and these bonds were indeed held by a large number of smaller, retail investors.
SWITZERLAND IS ON ITS OWN
Switzerland’s reputation as a stable jurisdiction where the private sector operates freely and without government intervention has been severely impacted by FINMA’s decision. Immediately after the write-down was announced, central banks in other key markets, including the Bank of England and the European Central Bank, stated they would not have taken the same action, and reiterated that they would continue to respect the hierarchy of bondholders in the capital structure.
THE TIMELINE OF THE ACTION
BACKGROUND TO THE AT1 WRITE-DOWN
On March 19, 2023, Credit Suisse and UBS announce that they entered into a definitive agreement for UBS to acquire Credit Suisse in an all-share transaction. Under the terms of the agreement, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they own. This acquisition is still subject to regulatory approvals outside Switzerland.
Further, on that same day, The Swiss Federal Council ("SFC") published the Ordinance on Additional Liquidity Assistance Loans and the Granting of Federal Default Guarantees for Liquidity Assistance Loans from the Swiss National Bank to Systemically Important Banks (the “Ordinance”, as amended on 19 March).
On the basis of the Ordinance, the following decisions were taken: No shareholders’ approval was required for Credit Suisse/UBS transaction; Swiss National Bank granted Credit Suisse access to a liquidity assistance loan facility of up to CHF 100 billion, backed by a federal default guarantee; Swiss National Bank granted Credit Suisse access to a further liquidity assistance loan facility of up to CHF 100 billion, with privileged creditor status of the Swiss National Bank in a potential bankruptcy; Swiss government provided a CHF 9 billion guarantee to UBS to assume potential losses arising from certain assets that UBS takes over as part of the transaction, in cases such losses exceed a first lost threshold of CHF 5 billion, to be absorbed by UBS; and Swiss Financial Market Supervisory Authority (FINMA) ordered the write-down of AT1 bonds, worth USD 16 billion – the largest loss to AT1 debt market to date.