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A Swiss court has ruled that the decision to wipe out SFr16.5bn (£15.5bn) of Credit Suisse’s Additional Tier 1 (AT1) bonds as part of a government-orchestrated rescue was unlawful.
The case was brought by about 3,000 investors across 360 cases after Swiss financial regulator Finma ordered the bonds be written off in March 2023, as part of Credit Suisse’s emergency rescue by UBS.
The Swiss Federal Administrative Court said that Finma had no clear legal basis for the move. The court found that the regulator’s decree had been invalid but did not rule on whether the bonds should be reinstated or repaid.
Finma’s decision was controversial because while AT1 bondholders were wiped out, it allowed Credit Suisse shareholders to retain some value, reversing the usual order in which investors bear losses.
The decision divided the market, with some arguing that the owners were sophisticated investors who should have been aware that the bonds could be written down.
In a ruling published on Tuesday, judges found that the legal and contractual conditions for the write-off had not been met. Credit Suisse, now part of UBS, was still adequately capitalised at the time, and the government’s liquidity support did not amount to a “viability event” that would trigger a total loss of AT1 value, the court ruled.
It also found that there was no solid legal foundation for Finma’s action, ruling that the provisions cited by the regulator had been too vague and failed to justify overriding investors’ property rights.
The ruling can be appealed to Switzerland’s Federal Supreme Court. Other pending legal cases relating to the cancellation of Credit Suisse’s AT1 bonds will remain on hold until that appeal is resolved.
Finma said it “accepts the partial decision of the Federal Administrative Court to write down AT1 capital instruments” and “will now analyse this decision”.
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