GENEVA – About 50 Credit Suisse Group bank executives are suing Switzerland’s financial regulator, Finma, for rendering their bond-based bonuses worthless as part of the stricken lender’s state-brokered takeover by UBS Group.
The employees are suing over the write-down of so-called contingent capital awards (CCAs) based on a risky category of notes known as Additional Tier 1 (AT1) bonds, according to a spokesman for the Swiss Federal Administrative Court, who declined to give details on the timing of the claims.
The employees are split into three groups, the court spokesman said. One is represented by the firm of Nater Dallafior, according to a person familiar with the litigation who spoke on condition of anonymity. The Zurich law firm declined to comment.
The fate of the bond-linked bonuses has been one of the legal flash points since the emergency rescue and UBS takeover in March. Credit Suisse last week withdrew an appeal over the write-down of the awards. Before backing down, the Zurich-based bank had argued that the wipeout of the AT1s should not apply to the CCAs because they were not issued by the lender but awarded by other companies in the banking group.
Credit Suisse declined to comment on the reasons for dropping its case or on the bankers’ lawsuits. The bank is restricted due to the terms of the merger agreement to not take any legal steps that could jeopardise the government-brokered rescue.
Created after the 2008 financial crisis, AT1 bonds are the lowest rung of bank debt, producing juicy returns in good times but taking the first hit when a bank runs into trouble. Even shareholders – often the first domino to fall in such situations – salvaged some value from the takeover engineered by the Swiss authorities, while Credit Suisse’s AT1 bond holders walked away with nothing.
The Swiss federal court has received at least 230 appeals representing about 2,500 claimants who saw the value of their bonds written down to zero. They argue that the write-down of US$17 billion (S$23 billion) worth of bonds was an unfair and disproportionate move that put shareholders before bond holders, contrary to the conventions of insolvency proceedings.
Defenders of the decision by Finma point out that the risk of a write-down was clearly laid out in the bonds’ fine print.
The Swiss regulator declined to comment on the cases. Finma previously published its position on the move, explaining that the write-down was part of a takeover plan that was the least bad option after it and the government rejected a wind-down of Credit Suisse or temporary nationalisation. BLOOMBERG
