Fallout from the Credit Suisse takeover by rival UBS continues as that merger nears completion with regulatory approval expected by the end of this month.
According to an AFP report, Switzerland’s justice authorities had received 230 complaints in relation to regulators deciding to cut the value of high-risk Credit Suisse bonds to zero. The move was made to facilitate Credit Suisse’s takeover by UBS and prevent a financial bloodbath.
The Swiss Financial Market Supervisory Authority (FINMA) required that 16 billion Swiss francs (US$17.9 billion) of so-called additional tier 1 (AT1) bonds be rendered worthless in the mega-merger.
“The Federal Administrative Court has received approximately 230 appeals, involving roughly 2,500 appellants, against FINMA’s ruling of March 19, 2023, regarding the write-down of the AT1 instruments,” the court said in a statement per AFP.
AT1s (known as capital notes in Australia) are a type of hybrid debt instrument created after the financial crash of 2008 to give banks greater capital flexibility in the event of crises.
AT1 holders were aggrieved at the decision as they are usually better protected than shareholders who will receive a payout, whilst the bondholders will receive nothing.
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In Switzerland, the bonds’ terms state, however, that in a restructuring, the financial watchdog is under no obligation to adhere to the traditional capital structure.
It has been revealed that Credit Suisse disputed the write-down decision to the regulator in an effort to salvage staff bonuses that were tied to the debt.
Credit Suisse staff are preparing to sue FINMA over the US$400 million in bonuses that have this week been cancelled.
Authorities are also looking at whether bonus payments already made can be recovered due to Swiss law measures available if a bank receives state aid from federal funds according to Reuters.
