Welcome to Extreme Investor Network, where we provide valuable insights and unique information on all things finance. Today, we’re diving into the recent lawsuit filed by a group of Credit Suisse bondholders against the Swiss government over the write-down of the failed bank’s Additional Tier 1 (AT1) debt.
In a bold move, Swiss regulator Finma wiped out approximately $17 billion of Credit Suisse’s AT1 debt as part of the emergency sale to UBS orchestrated by the Swiss government last year. This decision, which placed common shareholders above AT1 bondholders in the hierarchy of restitution, sparked outrage among bondholders and raised questions about property rights and regulatory frameworks.
Law firm Quinn Emanuel Urquhart & Sullivan, representing the plaintiffs, has filed a lawsuit in the U.S. District Court for the Southern District of New York, challenging Switzerland’s decision as an “unlawful encroachment on the property rights of the AT1 bondholders.” The face value of the AT1 bonds held by the plaintiffs in the suit was reported to be over $82 million.
AT1 bonds are a risky form of junior debt designed to absorb losses and protect financial institutions against future crises. These bonds automatically convert into equity when the capital ratio falls below a certain threshold, providing a crucial buffer in times of financial instability.
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