Some Weigh Suit as UBS Takeover Wipes Out $17B in Credit Suisse Bonds

Lawyers from Switzerland, the United States and the UK are talking to Credit Suisse Additional Tier 1 (AT1) bondholders about possible legal action after the state-backed rescue of Credit Suisse by UBS wiped out AT1 bonds, law firm Quinn Emanuel Urquhart & Sullivan said on Monday.

CNBC articles put the sum at some $17 billion in its reports.

Quinn Emanuel said it was in discussions with Credit Suisse AT1 bondholders representing a “significant percentage” of the total notional value the instruments. Quinn Emanuel did not name the bondholders.

Under the UBS-Credit Suisse merger deal, holders of Credit Suisse AT1 bonds will get nothing, while shareholders, who usually rank below bondholders in terms of who gets paid when a bank or company collapses, will receive $3.23 billion.

In Switzerland, the bonds’ terms state that in a restructuring, the financial watchdog is under no obligation to adhere to the traditional capital structure hierarchy, which is how Credit Suisse AT1 bondholders lost out.

Funds managed by Lazard Freres Gestion, PIMCO and GAM Investments were among the most exposed as of end-February to Credit Suisse AT1 debt in terms of portfolio weighting, leaving them potentially vulnerable to losses from the bond write-off, based on Morningstar data seen by Reuters.

A call for bondholders is likely to be convened on Wednesday, March 22, Quinn Emanuel said.

The Credit Suisse rescue has caused turmoil in European markets, with banks’ bond prices under pressure as investors focus on the potential risks of holding AT1 bonds.