The financial industry has been closely monitoring the developments surrounding Credit Suisse, a major Swiss bank that encountered significant challenges leading to its merger with UBS Group AG in 2023. This merger effectively marked the end of Credit Suisse as a standalone entity, following a period of financial instability and regulatory scrutiny. While the merger aimed to stabilize the situation, it has also triggered a series of complex legal battles involving investors, regulators, and financial institutions. These litigations are now at the forefront of discussions regarding the bank’s legacy and the implications of its final decisions.
The merger between Credit Suisse and UBS was driven by financial challenges and several high-profile scandals that affected Credit Suisse’s stability in the years leading up to 2023. Significant events included the collapse of Greensill Capital, which resulted in substantial losses for Credit Suisse’s clients, and the Mozambique “tuna bond” scandal, which led to legal actions and financial penalties. The fall of Archegos Capital Management further impacted the bank, causing losses of more than $5 billion. Additional issues included a corporate espionage incident involving surveillance of former executives, and the resignation of Chairman António Horta-Osório following breaches of COVID-19 protocols. Credit Suisse was also found guilty of failing to prevent money laundering related to a Bulgarian criminal organization. These events contributed to a decline in investor confidence and financial instability, prompting Swiss authorities to facilitate a merger with UBS as a measure to stabilize the banking sector and mitigate broader financial risks.
As a law firm directly involved in civil, criminal and administrative litigation with Credit Suisse/UBS, in our latest review we analyze the current state and the key factors driving the current litigation against the bank.
What Is the current status of Credit Suisse bank?
As of 2024, Credit Suisse no longer operates as an independent entity due to its merger with UBS Group AG in June 2023, effectively ending Credit Suisse’s 167-year history. The integration involved consolidating Credit Suisse’s various operations, including retail, wealth management, and investment banking, under the UBS umbrella.
UBS has undertaken a strategic plan to manage this significant merger, focusing on maintaining global financial stability while creating sustainable value for its shareholders. This process involves extensive restructuring, which may include job cuts and operational streamlining, as UBS aims to efficiently integrate the two banking giants. The merger has significantly bolstered UBS’s global presence, particularly in wealth management, but it also raises concerns about the impact on competition within the Swiss banking sector.
What are the key legal claims against Credit Suisse regarding AT1 bonds?
The ongoing legal actions against Credit Suisse revolve around the controversial writedown of $17 billion in Additional Tier 1 (AT1) bonds, which was ordered by the Swiss Financial Market Supervisory Authority (FINMA) during the bank’s final days as an independent entity. The lawsuit primarily concerns the decision to trigger a clause that resulted in the complete writedown of these bonds, rendering them worthless.
Additionally, some investors are pursuing arbitration claims under Switzerland’s extensive Bilateral Investment Treaties (BITs), arguing that the writedown constitutes a breach of protections such as fair and equitable treatment. As we outlined in our earlier Insight, these treaties provide investors with the ability to seek compensation through international arbitration, further exacerbating the legal challenges associated with a bank collapse.
AT1 bonds, also known as contingent convertible bonds, are a type of high-risk investment designed to absorb losses during financial distress. The writedown was justified under the terms of the bonds, which allowed for such a measure in extreme situations to stabilize the bank. However, many investors have argued that the writedown was executed improperly and without adequate warning, leading to substantial financial harm. The bonds, which were sold to both institutional and retail investors, were particularly criticized for being marketed as relatively safe investments, despite their inherent risks.
As a result, over 100 plaintiffs have filed lawsuits, not only against Credit Suisse but also targeting other financial institutions like MUFG, which played a role in selling these bonds. These claims are now being litigated in courts across multiple jurisdictions, with plaintiffs seeking billions in damages to recover their losses. Additionally, the lawsuits also allege that the Swiss government’s involvement in orchestrating the merger with UBS and the subsequent writedown of these bonds was done in a way that favored certain stakeholders over others, particularly at the expense of AT1 bondholders. This legal battle represents one of the most significant financial litigations in recent history, with wide-ranging implications for the future of AT1 bonds and investor protections.
Who is involved in suing Credit Suisse?
The legal battles against Credit Suisse have been initiated by a diverse group of plaintiffs, including major institutional investors, hedge funds, and individual investors from Europe, Asia, and North America. One of the most prominent lawsuits was filed in the U.S. District Court for the Southern District of New York by a group of Credit Suisse bondholders, which holds over $82 million in AT1 debt and is suing Switzerland for compensation. The plaintiffs argue that the complete writedown of AT1 bonds, which were designed to absorb losses in times of financial distress, was carried out unfairly and without proper notice, causing significant financial harm.
In addition to this lawsuit, the hedge fund Appaloosa LP has also joined the growing list of entities suing over the AT1 bond wipeout. Appaloosa LP, alongside other institutional investors, contends that the Swiss government’s actions during the UBS-Credit Suisse merger disproportionately favored other stakeholders and disregarded the interests of AT1 bondholders. These plaintiffs are seeking compensation for their losses and are pushing to hold both Credit Suisse and the Swiss government accountable for what they view as a breach of investor trust and a failure to protect their financial interests.
How could ongoing litigation impact the financial industry?
The ongoing litigation demonstrates the effectiveness of our legal system, offering a positive reflection on its functionality. The lawsuits surrounding Credit Suisse’s writedown of AT1 bonds may also have significant implications for the broader financial industry. These legal battles are not only focused on recovering losses but could set important precedents that may reshape the future of high-risk financial instruments like AT1 bonds. If plaintiffs succeed, stricter regulations and increased scrutiny on the issuance and marketing of such bonds may follow, potentially altering how these instruments are perceived by investors and financial institutions.
Credit analysts from leading agencies, including S&P Global, Moody’s, and Fitch Ratings, have warned that the Credit Suisse writedown has already made AT1 issuance harder and more expensive. Investors are expected to demand higher risk premiums due to increased concerns over the potential for losses. Investors are now reassessing risk levels associated with AT1 bonds, which could lead to higher pricing and lower issuance as banks are forced to address heightened scrutiny of bond terms and write-down clauses.
The litigation could also lead to broader changes in how governments and regulatory bodies respond to banking crises, with potential shifts in how they balance investor protection with financial system stabilization. This could mean higher costs and legal risks for financial institutions issuing AT1 bonds, making them a less attractive tool for managing capital requirements.
In the longer term, these lawsuits may prompt changes in the regulatory frameworks governing AT1 bonds and other high-risk financial instruments. This could result in stronger investor protections, more transparency, and possibly higher costs for banks seeking to issue these types of bonds. As a result, global financial markets may see changes in how banks manage their capital structures and engage with investors, with the possibility of increased costs and risks for financial institutions. However, analysts note that while short-term impacts may include higher premiums, the overall market for AT1 bonds could stabilize in the future with clearer terms and better risk understanding.
In today’s complex financial landscape, meeting the challenges posed by high-risk financial instruments requires expert legal guidance. At LINDEMANNLAW, we specialize in providing strategic advice on the regulation and litigation of these instruments on a global scale. As an independent law firm, we have a successful track record in civil, criminal and administrative litigation with Credit Suisse/UBS. Whether you are an institutional investor, a hedge fund, or an individual seeking to protect your investments, our team is here to help you understand your rights and make informed decisions. Contact us today to discuss how we can meet your legal needs, manage the complexities of financial regulation and ensure your investment is protected in an ever-evolving market.
