Credit Suisse bondholders given boost as court deems $20bn wipeout unlawful

A Swiss court has ruled that the decision to wipe out $20 billion in Credit Suisse bonds during the bank’s government-backed rescue by UBS was unlawful.

On Tuesday (14 October), the Federal Administrative Court said Swiss regulator FINMA had no legal basis for ordering the write-off of Credit Suisse’s Additional Tier 1 (AT1) bonds, which were wiped out as part of the 2023 emergency takeover.

According to a statement, the court "considered that the bondholders’ property rights were seriously interfered with, which would have required a clear and formal legal basis. But no such basis existed." The decision can still be appealed to Switzerland’s Supreme Court.

The ruling marks a sharp rebuke to FINMA’s handling of the $3.25 billion UBS-Credit Suisse rescue, which shook global markets and left many investors empty-handed. Roughly 3,000 bondholders filed claims against the decision across 360 separate cases.

Fallout from the Credit Suisse collapse

The controversial AT1 write-off - amounting to around CHF 16.5 billion - was designed to stabilise Credit Suisse’s balance sheet and avoid a full government bailout. But the move drew criticism for flipping the normal hierarchy of loss absorption, in which shareholders typically take losses before bondholders.

Law firms involved

Quinn Emanuel is acting for more than 1,000 of the affected investors, accounting for over a third of the total AT1 notes. Zurich partner Thomas Werlen, who is involved in the Swiss litigation, said: "We welcome the Federal Administrative Court’s ruling that the decision to write down our clients’ AT1 bonds was unlawful," according to Bloomberg.

Quinn is not the only major firm involved in the fallout. In July, HFW launched a $5 billion investor-state arbitration against Switzerland at ICSID, the World Bank’s investor-state dispute resolution body in Washington DC, acting for a separate group of Credit Suisse bondholders.

Withers is working on a similar action on behalf of bondholders in Asia and the Middle East.