HFW kicks off $5bn bondholder action over Credit Suisse AT1 wipeout

HFW is launching a class action arbitration against Switzerland on behalf of Credit Suisse bondholders, alleging breaches of international law tied to the controversial wipeout of $17 billion in Additional Tier 1 (AT1) bonds during the bank’s emergency rescue by UBS in 2023.

The claim will be heard at ICSID, the World Bank’s investor-state dispute resolution body in Washington. HFW said it has already gathered a "substantial group" of investors in Singapore whose claims are currently valued at over $80 million, and expects total exposure among global claimants to top $5 billion.

Background

AT1 bondholders were impacted when Swiss regulator FINMA ordered a full write-down of Credit Suisse’s AT1 bonds in March 2023 as part of the government-backed sale to UBS, wiping them out entirely. While AT1 bondholders lost their entire investment, Credit Suisse shareholders retained some value by receiving UBS shares in the merger - albeit at a significant discount.

AT1 bonds are issued by banks to boost their regulatory capital. While they offer high yields to holders, they can be written-down or converted to equity to help a bank remain solvent (and avoid the need for a government bail-out).

HFW's action

HFW said the group is relying on a Swiss government report published late last year that contains "key admissions" they plan to use in the arbitration. The firm argues that Swiss authorities failed to meet the necessary conditions for triggering the AT1 write-down and it breached the "usual order of loss absorption hierarchy".

Lead partner, Singapore-based arbitration specialist Shaun Leong, said claimants now face a ticking clock: "We can expect Switzerland to claim a three-year time bar", he said. "As the write-down happened in April 2023, we are a few months away from April 2026. Any claims not formally launched by then may be challenged as time-barred.”

The move adds to legal pressure on Swiss authorities. US litigation powerhouse Quinn Emanuel is leading a separate claim against the government for over 1,000 bondholders representing more than a third of the AT1 notes’ notional value.