As part of the emergency merger with UBS, Finma had Credit Suisse’s so-called AT1 bonds written off worthless.
(Photo: Reuters)
Zurich New trouble for the Swiss financial regulator: After large investors initially filed a complaint against a central decision by Finma in the emergency rescue of Credit Suisse, private investors are now also taking part in the process.
Wealthy investors from the US, UK, Singapore, Switzerland and the Middle East are joining the complaints from creditors represented by the law firm Quinn Emanuel Urquhart & Sullivan.
As part of the emergency merger with UBS, Finma had Credit Suisse’s so-called AT1 bonds written off worthless. The aim was to strengthen the equity cushion of the crisis bank. However, bond investors feel unfairly dispossessed.
They argue that the legal requirements for writing off the bonds have not been met. The Swiss government therefore changed an emergency ordinance overnight to enforce the write-off.
Dennis Hranitzky, lawyer at Quinn Emanuel, says: Finma’s actions have had “devastating consequences” for thousands of private investors worldwide. It has now succeeded in “extending the reach of the group of bondholders to a large number of small investors who have contacted us since the announcement of the AT1 write-down”.
The risky interest-bearing securities are primarily aimed at professional and semi-professional investors who can invest at least CHF 100,000 in a single security. Because of the interest rate of sometimes more than nine percent, however, wealthy private investors worldwide also had access. Compared to investors like the pension fund of the Swiss grocer Migros, which alone has to cope with losses of 100 million francs, these are still considered small investors.
Shareholders were partially spared
The complainants are trying to get the Federal Administrative Court in St. Gallen to have Finma withdraw the decision or compensate the investors. Thomas Werlen, Managing Partner of Quinn Emanuel in Switzerland, says: “This is not only in the interest of our clients, but also strengthens Switzerland’s position as an important jurisdiction in the global financial system.”
>> Read here: Credit Suisse shareholders settle accounts with the management – management sees no mistakes of its own
The creditors are also angry because, unlike the shareholders, they are facing a total loss. Credit Suisse shareholders received UBS shares worth CHF 0.76 per Credit Suisse share. Although they had to accept losses of 75 percent compared to the last stock market price, they did not go completely empty-handed.
Shareholders are usually the last to be served when a company goes bankrupt. The Swiss financial regulator broke with this common ranking in its spectacular rescue operation for the second largest Swiss bank.
More: Credit Suisse investors are taking Swiss financial regulators to court