Credit Suisse bond holders consider possible legal action after $23 billion wipeout
Sign up now: Get ST's newsletters delivered to your inbox
Credit Suisse said 16 billion Swiss francs (S$23 billion) of its AT1 debt will be written down to zero as part of its rescue merger with UBS.
PHOTO: REUTERS
Follow topic:
LONDON – Lawyers from Switzerland, the United States and Britain are talking to a number of Credit Suisse additional tier one (AT1) bond holders about possible legal action after their bonds were wiped out, law firm Quinn Emanuel Urquhart & Sullivan said on Monday.
Credit Suisse said on Sunday that 16 billion Swiss francs (S$23 billion) of its AT1 debt will be written down to zero
Quinn Emanuel said it is in discussion with Credit Suisse AT1 bond holders representing a “significant percentage” of the total notional value of the instruments.
It did not name the bond holders.
Under the UBS-Credit Suisse merger deal, holders of Credit Suisse AT1 bonds will get nothing, while shareholders, who usually rank below bond holders in terms of who gets paid when a bank or company collapses, will receive US$3.23 billion (S$4.3 billion).
In Switzerland, the bonds’ terms state that in a restructuring, the financial watchdog is under no obligation to adhere to the traditional capital structure hierarchy, which is how Credit Suisse AT1 bond holders lost out.
Funds managed by Lazard Freres Gestion, Pimco and GAM Investments were among the most exposed as at the end of February to Credit Suisse AT1 debt in terms of portfolio weighting, leaving them potentially vulnerable to losses from the bond write-off, based on Morningstar data seen by Reuters.
Pimco had 3.49 per cent of its €5.66 billion (S$8 billion) GIS Capital Securities Fund in Credit Suisse AT1 bonds, the Morningstar data showed.
Pimco declined to comment when asked about the AT1 holding and also the potential legal action.
Lazard Freres Gestion had 7.4 per cent of its €1.45 billion Lazard Capital Fi SRI fund allocated to Credit Suisse AT1 debt. It did not respond to a request for comment on its holding or the possible legal action.
The exposure of GAM’s €1.15 billion Star Credit Opportunities fund to Credit Suisse AT1 debt was 4.81 per cent at the end of February, based on Morningstar data.
GAM declined to comment.
A call for bond holders is likely to be convened on Wednesday, Quinn Emanuel said.
The Credit Suisse rescue has caused turmoil in European markets, with banks’ bond prices under pressure as investors focus on the potential risks of holding AT1 bonds.
European regulators on Monday said they will continue to impose losses on shareholders before bond holders in a bid to calm investor nerves following the fallout of Switzerland’s AT1 decision. REUTERS
