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Class Action Lawsuit: Shareholders in Credit Suisse are Suing Swiss Financial Authorities Over the UBS Merger

Following a purchase of the bank by UBS that caused them to suffer significant losses, a group of Credit Suisse investors launched a case against Swiss financial regulators. 

The action taken by the Swiss Financial Market Supervisory Authority (FINMA) to delete higher-risk Credit Suisse bonds worth roughly 16 billion Swiss francs ($17.3 billion) as part of an emergency bailout is being contested by shareholders. 

The deal, which was worth $3.25 billion, prevented the collapse of Switzerland’s second-largest bank as clients rushed to withdraw their money due to concerns about Credit Suisse’s ongoing issues and the instability of the global financial system in the wake of the failure of two US banks. At the time, the bank’s stock price was falling and customers were fleeing to withdraw their money.

Shareholders holding more than 4.5 billion Swiss francs ($5 billion) in the riskier bonds hired the law firm Quinn Emanuel Urquhart & Sullivan to bring the case on their behalf. 

According to Thomas Werlen, managing partner at Quinn Emanuel Urquhart & Sullivan in Switzerland, “FINMA’s decision weakens global trust in the legal safety and dependability of the Swiss financial center.”

Werlen declared in a prepared statement on Friday, April 21, 2023, that they were adamant about changing this choice since it would not only benefit our clients but also strengthen Switzerland’s position as a key financial system nation.

What has FINMA stated?

FINMA refrained from commenting on the complaint but stood by its choice to exclude bondholders. According to this, in the event that a bank fails, shareholders often suffer losses before bondholders. 

A unique kind of bond was developed by European financial authorities in the wake of the 2008 financial crisis in order to give banks a capital safety net during trying times. But if a bank’s capital falls below a predetermined threshold, these bonds are designed to be written off.

According to Swiss regulators, the agreements for Credit Suisse’s so-called Additional Tier 1 (AT1) bonds demonstrate that they can be written down in a “viability event,” especially if the government provides exceptional support. 

This occurred after the Swiss executive branch implemented emergency measures that guaranteed the deal with billions of dollars and gave regulators the authority to force a write-down of the bonds. The government was allowed to proceed with the acquisition without the shareholders’ consent because of the emergency rescue plan.

The merger was seen by regulators to be the “best option” since it offered the least threat of sparking a larger crisis and undermining Switzerland’s reputation as a financial hub. 

The article was originally posted on – Mint (livemint.com)