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Swiss Government Faces Lawsuit Over $17 Billion Credit Suisse AT1 Debt Nullification

A group of Credit Suisse bondholders has initiated legal action against the Swiss government, seeking full compensation for the nullification of the bank’s Additional Tier 1 (AT1) debt. The lawsuit, filed by the law firm Quinn Emanuel Urquhart & Sullivan in the U.S.

District Court for the Southern District of New York, follows last year’s emergency sale of Credit Suisse to UBS arranged by the Swiss government.

During this process, the Swiss financial regulator, Finma, wiped out approximately $17 billion of Credit Suisse’s AT1 bonds, reducing their value to zero, while common shareholders received payouts, angering the bondholders.

Credit Suisse bondholders has initiated legal action against the Swiss government

Credit Suisse bondholders take legal action against Swiss government over nullified $17 billion AT1 debt.

AT1 bonds, a type of junior debt introduced after the 2008 financial crisis, are designed to absorb losses if a bank’s capital falls below a certain level by converting into equity to stabilize the bank.

However, the bondholders, represented by Quinn Emanuel, argue that the Swiss authorities’ action unlawfully violated their property rights.

Dennis Hranitzky, a partner at the firm, described Switzerland’s decision as a “needless” destruction of $17 billion in AT1 bonds. The plaintiffs hold AT1 bonds with a face value of over $82 million.

The Swiss Finance Ministry has declined to comment on the lawsuit, while Finma has defended its decision as necessary for Credit Suisse’s viability.

This legal battle highlights the complexities and risks associated with AT1 bonds and raises questions about the hierarchy of restitution in bank failures.

The outcome of this case could have significant implications for the treatment of AT1 bonds in future financial crises.

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