Credit Suisse bond investors plot lawsuit against Switzerland

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A group of international bond investors is drawing up plans to sue Switzerland in the US courts for expropriation over the losses they suffered after the state-orchestrated rescue of Credit Suisse.

The case is being brought together by law firm Quinn Emanuel, according to people familiar with the matter. Quinn Emanuel is already suing Switzerland’s financial regulator, Finma, over its decision to wipe out $17bn of Credit Suisse bonds when the bank was taken over by UBS six months ago.

Lawyers at Quinn Emanuel are laying the groundwork to sue Switzerland in the US, where they believe there is a greater chance of convincing a judge to waive the country’s sovereign immunity rights.

The suit could be filed by the end of the year, though it is not certain to proceed, according to people involved in the discussions.

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“In essence, the claim would be seeking compensation for the destruction of [investors’] property rights,” said a person with knowledge of the plans. Claimants would be “seeking recourse for expropriation . . . through the writedown order”, they added.

At the centre of the case is a decision by the Swiss government in March to introduce an emergency law that allowed Finma to write down $17bn of Credit Suisse’s additional tier 1 bonds. The decision overturned the traditional hierarchy among bank creditors as Credit Suisse shareholders were still able to make $3.4bn from the takeover.

Within weeks of the deal being agreed, Quinn Emanuel and London-based law firm Pallas launched separate Swiss lawsuits against Finma over the decision. Quinn Emanuel is representing plaintiffs with $6bn of AT1 claims, while Pallas’s clients have about $2bn.

Any lawsuit in the US would not include the same claims made by plaintiffs in the Finma case, said people with knowledge of the plans.

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The Swiss government did not immediately respond to a request for comment. Quinn Emanuel declined to comment.

The law firm has a history of dragging nation states through the courts, most notably Argentina in a long-running legal fight over sovereign bonds that the country issued as part of its post-financial crisis debt restructuring.

Quinn Emanuel won a London High Court case in April in which Argentina was ordered to pay more than €1.3bn to compensate investors for losses on the bonds that were linked to the country’s economic growth.

Argentina had previously paid out $9.3bn to creditors in 2016 following what was dubbed as the “sovereign debt trial of the century”, triggered by the country defaulting on almost $100bn in 2001.

It is unusual for sovereign states to be sued for expropriation because many nations have reciprocal investment treaties. However, Switzerland is not party to investor state treaties in many of the countries where the AT1 investors reside, most notably the US.

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The group Quinn Emanuel represents includes retail and institutional investors that were long-term owners of the AT1 bonds, but also some hedge funds that speculatively bought the debt at steep discounts during the final months before the Swiss bank’s demise. 

UBS’s takeover of Credit Suisse was designed by Swiss authorities to prevent the collapse of the 167-year-old lender from spiralling into a wider European banking crisis.

But the takeover — which has been labelled by Swiss politicians as the “deal of the century” — has already prompted a flurry of lawsuits from Credit Suisse investors who lost billions of dollars.

Former Credit Suisse employees have considered suing Finma over losses they made after more than $400mn of bonuses were cancelled when the AT1s were written down.

Separately, several claims by equity investors against UBS have been lodged with Zurich’s commercial court.

Source: https://www.ft.com/content/dae59bc5-32ba-48bf-ad5f-0c1ca468906e