credit suisse at1 bond lawsuit against switzerland faces lengthy legal battle

The legal dispute surrounding Credit Suisse's AT1 bonds is expected to continue into next year, with a decision in the case not expected until February 2024.

Background

The case involves eight former creditors of Credit Suisse who are seeking compensation of around 80 million Swiss francs. The plaintiffs argue that the Swiss Financial Market Supervisory Authority (Finma) acted unlawfully when it declared the AT1 bonds worthless during the bank's takeover in March 2023, violating their property rights.

The AT1 bonds, also known as contingent convertibles (Cocos), were rendered worthless as part of a government-supported takeover involving the Swiss National Bank and Finma. The plaintiffs claim that the decision to write off these bonds was unjust and infringed upon their rights as creditors.

Lawsuit and Implications

The case was filed in June 2024 at the United States District Court for the Southern District of New York and has attracted significant attention due to its implications for Swiss and international investors.

The presiding judge, Dale Ho, has granted an extension for the defense, allowing Switzerland more time to prepare its case. The initial hearing is scheduled for February 5, 2024.

The legal representation for the plaintiffs includes the law firm Quinn Emanuel Urquhart & Sullivan, which has a presence in Zurich. This firm is also involved in a separate complaint filed with the Federal Administrative Court in St. Gallen against Finma's decision, representing both Swiss and international investors who collectively held more than 6 billion Swiss francs in Credit Suisse AT1 bonds.

The ongoing litigation highlights the broader implications of the AT1 bond write-off, which has affected a significant number of investors.

Consequences and Future Impact

The outcome of this lawsuit could have wide-ranging consequences for the financial markets, particularly in relation to contingent convertible bonds. The decision by Finma to declare the AT1 bonds worthless has raised questions about the regulatory framework governing such instruments and the protections provided to investors.

The case may set a precedent for how similar situations are handled in the future, potentially impacting investor confidence in AT1 bonds and other contingent instruments. The legal arguments presented by both sides will likely delve into property rights and regulatory authority, making this a significant case at the intersection of finance and law.

The proceedings are being closely monitored by financial analysts and investors, as they could reshape the landscape for contingent convertible bonds and influence how regulators approach similar situations in the future, as well as how investors assess the risks associated with these financial instruments.

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