A group of Credit Suisse AT1 bondholders, who were wiped out by the bank’s planned merger with UBS, have hired law firm Quinn Emanuel Urquhart & Sullivan to represent them in discussions with Swiss authorities and possible litigation to recover their losses.
According to a statement by the law firm, the bondholder group holds a “significant percentage of the total notional value” of the AT1 bonds. It includes large institutions that invested in the bonds long before the merger.
The wipeout occurred last month after Swiss regulators overturned the hierarchy of AT1 bonds, which are the riskiest type of debt banks can issue, ranking immediately after the equity in the event of losses. The regulators wiped out $17 billion of Credit Suisse’s AT1 debt under its takeover by UBS, a merger to avoid a meltdown in the country’s financial system.
The decision highlighted the risks of investing in these securities, causing a market rout that European regulators tried to stop by saying the owners of this type of debt would only suffer losses after shareholders have been wiped out – unlike what happened at Credit Suisse.
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The law firm’s managing partner at its Zurich office, Thomas Werlen, said, “There is still a chance that the various actors will recognize and correct the mistakes made in hastily orchestrating this merger.”
The legal action taken by the bondholders could have significant implications for Credit Suisse and its investors. The wipeout has caused many investors to lose trust in the bank and has raised concerns about the risks associated with investing in AT1 bonds.
In response to the wipeout, Switzerland’s Federal Prosecutor has opened an investigation into the state-backed takeover of Credit Suisse by UBS Group. The prosecutor looks into potential breaches of the country’s criminal law by government officials, regulators, and executives at the two banks.
The investigation could lead to criminal charges against those involved in the merger and provide evidence for the bondholders’ legal action.
The wipeout of the AT1 bonds has already caused significant losses for investors, and the legal action taken by the bondholders could potentially lead to a substantial payout. However, the outcome of the litigation is still being determined, and it could take years before a resolution is reached.
The wipeout has also highlighted the need for greater regulatory oversight of the banking industry and the risks associated with investing in AT1 bonds. It remains to be seen what steps regulators will take to address these concerns and prevent similar incidents from occurring in the future.
In the meantime, Credit Suisse and UBS will likely face increased scrutiny and regulatory pressure due to the wipeout and the investigation by the Federal Prosecutor. The outcome of the investigation and the bondholders’ legal action could have far-reaching implications for the banking industry as a whole, particularly regarding the regulation of AT1 bonds and the risks associated with investing in them.