The Swiss financial market supervisory authority, FINMA, is facing further legal action from investors eager to recover lost assets following FINMA’s decision to prioritise shareholders in the emergency takeover of Credit Suisse by UBS.
Institutional investors and asset managers holding over $1.35bn in Credit Suisse nominal value additional Tier 1 (AT1) bonds are the latest to have filed a lawsuit against the supervisory authority.
The investors, represented by law firm Pallas Partners, believe the Swiss government’s emergency ordinance of 19 March, amending one issued on 16 March to give FINMA power to order the write down of AT1 capital, is invalid, and the AT1 notes must be re-stated, according to a statement issued by the law firm.
The order given by FINMA to Credit Suisse, following the emergency ordinance passed by the government to provide extraordinary liquidity assistance loans to the bank, avoiding its collapse, resulted in the largest loss for bondholders to date on the AT1 debt market of around CHF16bn.
The supervisory authority will have to respond in court for an arbitrary violation of the property rights of the AT1 holders, an action going against Swiss constitutional and other legal protections, the law firm said, adding that it is ready to take further action to ultimately recover assets on behalf of the bondholders.
“FINMA didn’t have the authority to issue the order to write down the bonds; this was an abuse of process and the resolution procedure should not be used by Switzerland to enable UBS to take over Credit Suisse to the detriment of AT1 holders,” said Natasha Harrison, founder and managing partner of Pallas Partners.
FINMA declined to comment on the latest lawsuit, referring to a previous statement sent by the government to parliament explaining the reasons and consequences of the measures taken to avoid the collapse of Credit Suisse.
The law firm is also representing a second group of more than 700 retail and family office investors holding over $300m in AT1 bonds. Pallas Partners has already fought Credit Suisse in court, representing lenders in the recent ’tuna bonds’ and Greensill scandals.
Migros considers FINMA’s order disproportionate
Migros Pensionskasse (MPK), the pension fund for the Swiss retailer, is expecting the Federal Administrative Court to recalibrate the order taken by FINMA.
“In our view, FINMA’s order to fully write down all AT1 bonds issued by Credit Suisse Group was not appropriate. We expect that this will be adjusted by the decision from the BvGer (Federal Administrative Court),” MPK’s chief executive officer Christoph Ryter said.
Migros Pensionskasse has joined a group of investors representing assets worth more than CHF4.5bn to challenge FINMA in court. The pension fund lost CHF99m as a result of the authority’s decision.
The investors, represented by law firm Quinn Emanuel Urquhart & Sullivan, filed the formal complaint against FINMA’s decision before the St-Gallen-based Federal Administrative Court on 18 April.
So far this year, the pension scheme has recorded positive returns of 1.4%, against a benchmark of 2.1%, with equities and gold performing well at 6.2% and 7.4%, respectively, while nominal investments, including bonds, returned -0.6%, and real estate -0.3%.
“The underperformance in [satellite investment] bonds can be partially explained by the write-down of Credit Suisse AT1 bonds in March,” the CEO said.
At the end of March, however, the estimated funding ratio of the pension fund stood at 125.6%, above its target of 119%, putting the Pensionskasse in the position to fully face risks, he said.