Credit Suisse bondholders sued the Swiss regulator over the wipe-out

April 21 (Reuters) – Investors representing more than 4.5 billion Swiss francs ($5 billion) of Credit Suisse ( CSGN.S ) bonds are suing the Swiss regulator after their investments were wiped out during a government-planned rescue operation last month.

Law firm Quinn Emanuel Urquhart & Sullivan, which represents bondholders, said on Friday it was the first step in a battle to seek redress for clients whose assets were seized when Credit Suisse was acquired by larger rival UBS ( UBSG.S ). )

It is the first major case in the public domain over Switzerland’s decision to write off about $18 billion of Credit Suisse’s Additional Tier 1 (AT1) debt during a 3 billion Swiss franc all-share redemption deal last month that shocked markets and alerted prosecutors.

“We are committed to rectifying this decision, which is not only in the interests of our clients, but will also strengthen Switzerland’s position as a key jurisdiction in the global financial system,” said Thomas Verlon, Queen Emanuel’s Swiss managing partner.

Swiss regulator FINMA (Financial Market Supervisory Authority) declined to comment during weekend crisis talks in March after a plunge in the value of stocks and bonds intensified fears of a global banking crisis. Credit Suisse also declined to comment.

Peter Viktor Kunz, a professor of commercial law at the University of Bern, said it would be disastrous for FINMA and Switzerland’s reputation as a financial center if the regulator loses the case.

“The country’s reputation as a stable destination for investors is on the line,” he said.

The case was filed on April 18 at the Federal Administrative Court in St. Gallen in northeastern Switzerland.

‘Event of Performance’

FINMA said last month that its decision to impose steep losses on some bondholders was legally watertight because the bond offering and emergency government law allowed for wholesale write-downs “in the event of performance.”

In the wake of the global financial crisis, AT1 bonds were designed to insure investors, not taxpayers, if a bank ran into trouble.

Bondholders are seeking legal advice on restoring a long-standing practice of prioritizing bondholders over shareholders in debt recovery, and several claims have already been filed in Switzerland over the terms of the deal.

The Federal Administrative Court said it was still receiving complaints, but declined to name the claimants or comment on how many had been filed by bondholders or their lawyers.

Some investors have been trading the notes for a penny in what’s known as a litigation play, betting that successful legal claims will drive up values ​​in the future, lawyers said.

($1 = 0.8941 Swiss Francs)

Reporting by Jahnavi Nidumolu in Bangalore; Editing by Savio D’Souza

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