During last month’s financial turmoil, Credit Suisse suffered a staggering 4.6 billion euros ($5.04 billion) withdrawal from its funds, according to data released by Morningstar. This event occurred as Switzerland’s financial authorities coordinated an emergency acqui...
During last month’s financial turmoil, Credit Suisse suffered a staggering 4.6 billion euros ($5.04 billion) withdrawal from its funds, according to data released by Morningstar.
This event occurred as Switzerland’s financial authorities coordinated an emergency acquisition of Credit Suisse by rival bank UBS. In contrast, Swiss asset manager Swisscanto saw a remarkable 6.2 billion euros influx of funds in March, experiencing significant growth.
Credit Suisse’s legal battle with bondholders
Following the upheaval at Credit Suisse, a group of investors who collectively lost over CHF 4.5bn (£4bn) in bonds has filed a lawsuit against Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority (Finma).
The law firm Quinn Emanuel Urquhart & Sullivan represents the investors and has submitted the claim to a court in St Gallen, Switzerland. The plaintiffs are contesting Finma’s decision to instigate a “total write-down” of the bank’s AT1 bonds as part of the UBS takeover.
This legal action is just the first step in a series of planned moves by Quinn Emanuel to seek compensation for its clients, who have allegedly been “unlawfully deprived of their property rights,” as stated by Richard East, a senior partner in the firm’s London office.
Finma has previously defended its decision, claiming that AT1 bond contracts permit write-downs in specific situations, including instances of extraordinary government support, which authorized the regulator to reduce the debt.
Ripples in the AT1 bond market
Finma’s unorthodox move led to Credit Suisse bondholders losing a total of CHF 16bn in bank debt, deviating from the traditional practice where equity investors are wiped out before their debt-holding counterparts.
This decision sparked a sell-off in the AT1 bond market, as investors feared that other banks might adopt a similar approach.
To address the growing concerns, central banks in other jurisdictions, such as the UK and the eurozone, released statements to assuage investor fears.
They clarified that the Swiss decision would not establish a precedent, and their jurisdictions would follow a hierarchy in which equity-holders would lose out before bondholders.
As Credit Suisse faces the aftermath of the March crisis, the bank’s future hangs in the balance. It must regain investor confidence and address the consequences of the legal confrontation with its bondholders.
While Swisscanto experienced a significant increase in fund inflows, Credit Suisse must grapple with the substantial withdrawals that occurred during the upheaval.
With the possibility of further lawsuits and ongoing regulatory scrutiny, the bank’s recovery will serve as a critical test of its ability to withstand adversity.