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Swiss Bondholders Sue Credit Suisse Over $17 Billion AT1 Writedown

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Credit Suisse
Fabrice Coffrini | AFP | Getty Images

(CTN News) – Legal action has been taken by Credit Suisse bondholders against the Swiss government in an attempt to get full compensation for the controversial decision to write down the bank’s Additional Tier 1 (AT1) debt.

The action was pushed ahead because the choice had been made in reality. The case was initiated because bondholders have the option to submit a claim for complete recompense.

The previous year, during the government-organized emergency sale of Credit Suisse to UBS, Swiss regulator Finma wrote down the bank’s AT1s, valued at almost seventeen billion dollars, to zero. This was done to guarantee that the bank would be unable to carry on with business as usual. The goal of taking this step was to make sure the bank would be unable to continue operating.

Upon the successful completion of the transaction, the monies were disbursed to the bank’s common shareholders.

According to the Basel III framework, which was established in the wake of the financial crisis, the judgment was thought to have caused a disruption in the conventional European hierarchy of restitution in the event of a bank failure.

Not only that, but bondholders were thought to have been enraged by the decision for the previously mentioned reasons. When it comes to investing, this hierarchy often gives AT1 bonds a higher priority than it does stock investors.

Credit Suisse’s legal team,

Quinn Emanuel Urquhart & Sullivan, announced on Thursday that it has filed a complaint with the US District Court for the Southern District of New York. On Thursday, the complaint was submitted.

The plaintiffs’ AT1 value being written down to zero by Switzerland was described as “an unlawful encroachment on the property rights of the AT1 Bondholders.” Switzerland made a choice, to which this decision was taken in reaction. This decision was made by the Swiss government to shield it from possible legal action.

Before, in March of the previous year, Finma advised Credit Suisse to write down its AT1 bonds, citing a “viability event” as justification. This choice was used to justify Finma’s assessment. This decision was made in an attempt to provide Finma a reason for her choice.

The claim was made in a statement by Quinn Emanuel partner and head of the firm’s Sovereign Litigation practice Dennis Hranitzky.

“Through its actions, Switzerland needlessly wiped out $17 billion in AT1 instruments, unjustly violating the property rights of the holders of those instruments,” Hranitzky told reporters. “This will have a negative impact on the property rights of those who hold those instruments.”

According to News, which quoted the filing, the Credit Suisse plaintiffs in the complaint were purported to have held AT1 bonds with a face value of over $82 million. A number of other news outlets referenced the document as authoritative.

AT1s are junior Credit Suisse debt.

Debt of this kind is not uncommon. When compared to other bond categories, these bank bonds are seen as riskier. In an attempt to safeguard financial institutions against the potential for future crises, the authorities increased the amount of capital retained by financial institutions and decreased the amount of risk that taxpayers bore in the wake of the 2008 global financial crisis.

The purpose of this action was to safeguard them against the potential for future catastrophes. We know the exact instant these activities were launched because we can pinpoint that exact moment in time.

The primary characteristic of AT1 bonds is their ability to withstand losses, which is one of its many noteworthy features. These relationships have several other important Credit Suisse characteristics as well.

When the capital ratio drops below the predetermined threshold, equity is converted right away. Equity is automatically converted from AT1s. This occurs automatically once the barrier has been overcome.

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Alishba Waris is an independent journalist working for CTN News. She brings a wealth of experience and a keen eye for detail to her reporting. With a knack for uncovering the truth, Waris isn't afraid to ask tough questions and hold those in power accountable. Her writing is clear, concise, and cuts through the noise, delivering the facts readers need to stay informed. Waris's dedication to ethical journalism shines through in her hard-hitting yet fair coverage of important issues.

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