Swiss court deems 2023 Credit Suisse bond write-off unlawful, sparking questions about bank’s rescue and UBS takeover. FINMA’s decision to wipe out AT1 bonds faced investor backlash and legal challenges. UBS shares dropped over 3.5% after court ruling, citing lack of legal basis for write-off. Decision can be appealed at top court. Swiss finance ministry and FINMA to analyze ruling, UBS declines comment. Banking professor expects appeal.

2023 write-off of Credit Suisse’s AT1 bonds stunned markets, prioritizing shareholder compensation over bondholder claims. Shareholders received UBS stock valued at $3.25 billion, while AT1 holders got nothing, leading to lawsuits in multiple countries. Around 3,000 complaints filed against FINMA’s decree, requesting write-off reversal. Court revokes FINMA’s decree in one appeal case, other cases suspended pending final decision. Law firm representing complainants welcomes court ruling, assessing implications. Analysts predict unlikely full recovery of 16.5 billion francs due to bond devaluation during Credit Suisse’s rescue.

AT1 bonds, introduced post-2008 financial crisis, aim to bolster banks’ capital buffers and absorb losses without taxpayer bailouts. Bonds offer higher yields than senior bank debt, designed to prevent public funding for banks. FINMA’s write-off action disputed by investors, violating expectations and contractual norms. ($1 = 0.8038 Swiss francs) ($1 = 0.8030 Swiss francs) Reported by Kirsti Knolle, John Revill, Dave Graham, and Louise Heavens.

Read more at Yahoo Finance: Swiss court says $20 billion bond write-off in Credit Suisse rescue was unlawful