San Francisco Frontiers - Lawsuits pile up over Credit Suisse bonds write-down

Switzerland's biggest bank bought out its rival for $3.25 billion on March 19, under strong pressure from the regulators FINMA, the government and the central bank, to prevent Credit Suisse from collapsing.

FINMA required that 16 billion Swiss francs ($17.9 billion) of so-called additional tier 1 (AT1) bonds be rendered worthless in the mega-merger.

The order infuriated bondholders, who are typically better protected than shareholders.

Investors challenged the decision.

"The Federal Administrative Court has received approximately 230 appeals, involving roughly 2,500 appellants, against FINMA's ruling of March 19, 2023, regarding the write-down of the AT1 instruments," the court said in a statement.

"These proceedings are still pending and the FAC cannot say when a judgement will be handed down."

FINMA did not comment when contacted by AFP.

AT1 bonds were created in the wake of the 2008 global financial crisis to put the burden of any bank losses on investors instead of taxpayers.

Also known as CoCo, or contingent convertible bonds, they are a high-return investment but banks can suspend interest payments or convert them into bank shares in times of trouble.

On Sunday, the Swiss newspaper NZZ am Sonntag reported that a Japanese law firm was preparing a lawsuit and was trying to round up as many aggrieved creditors as possible to seek international arbitration proceedings.

And on Monday, Britain's Financial Times newspaper said employees also wanted to file a complaint against the regulator following the cancellation of bonuses linked to the bonds.

On Tuesday, the Swiss finance ministry issued an order cancelling or reducing the outstanding bonuses of top-level Credit Suisse managers.

Back in early April, the Swiss government said it would scrap the outstanding bonuses of Credit Suisse's executive board following the 167-year-old institution's implosion and takeover.

Bern also said it would slash the bonuses of those at the next two levels down, a move affecting around 1,000 employees who will be deprived of around 50 to 60 million Swiss francs ($55-$66 million).

The currently outstanding variable remuneration will be cancelled for the executive board, cut by 50 percent for managers one level below the board, and by 25 percent for the next level down, the finance ministry said.

"This takes account of the most senior managers' responsibility for the situation at Credit Suisse in a differentiated manner. Moreover, variable remuneration for these management levels due in 2023 will be cancelled or reduced on a pro rata basis until the takeover is completed," the ministry said in a statement.

"In addition, Credit Suisse must examine the possibilities for recovering remuneration already paid out to members of group management since 2019," and report to the finance ministry and FINMA on the issue.

S.Hall--SFF