From CNBC: 2024-06-07 03:23:32

A group of Credit Suisse bondholders filed a lawsuit against the Swiss government, seeking compensation after a write-down of the bank’s AT1 debt as part of an emergency sale to UBS. The move angered bondholders and reversed the usual hierarchy of restitution in the event of a bank failure.

Law firm Quinn Emanuel Urquhart & Sullivan filed a lawsuit in the U.S. District Court for the Southern District of New York, alleging that Switzerland violated the property rights of AT1 bondholders by writing down their value to zero. Finma defended its decision to instruct Credit Suisse to write down the AT1 bonds as a “viability event.”

The face value of the AT1 bonds held by the plaintiffs in the suit was over $82 million. AT1 bonds are considered a risky form of junior debt that absorb losses when a bank’s capital ratio falls below a certain threshold, converting them into equity. Regulators introduced AT1 bonds after the 2008 financial crisis to increase financial institutions’ capital resilience.

Read more: Credit Suisse bondholders sue Switzerland over $17 billion AT1 wipeout