Credit Suisse bondholders sue Switzerland in the U.S. over $17 billion writedown of AT1 debt
What specific legal claims are the Credit Suisse bondholders making against the Swiss government in their lawsuit?
The Credit Suisse bondholders are suing the Swiss government for allegedly violating their property rights when the government allowed the bank's Additional Tier 1 (AT1) bonds to be written down to zero during the emergency rescue of Credit Suisse by UBS. The bondholders argue that this decision was an unlawful encroachment on their property rights and that Switzerland prioritized national interests over its legal obligations. They are seeking full compensation for the loss of their investments.
How does the write-down of AT1 bonds typically compare to the treatment of common shareholders in European bank restructuring under the Basel III framework?
Under the Basel III framework, the typical hierarchy of restitution in the event of a bank failure places AT1 bondholders above common shareholders. This means that in a restructuring scenario, AT1 bonds are expected to be written down or converted into equity after the common shareholders have been wiped out. However, in the case of Credit Suisse's emergency sale to UBS, orchestrated by the Swiss government, the usual hierarchy was upended as the AT1 bondholders were wiped out while common shareholders received payouts. This decision angered bondholders and resulted in a lawsuit against the Swiss government, seeking full compensation for the write-down of the bank's AT1 debt.
On what grounds is the law firm Quinn Emanuel Urquhart & Sullivan challenging the decision to write down the AT1 bonds?
The law firm Quinn Emanuel Urquhart & Sullivan is challenging the decision to write down the AT1 bonds on the grounds that Switzerland's decision to write down the plaintiffs' AT1 value to zero was "an unlawful encroachment on the property rights of the AT1 Bondholders." The firm argues that the write-down needlessly wiped out $17 billion in AT1 instruments, unjustly violating the property rights of the holders of those instruments.