BERN: A group of Asian investors have joined other affected depositors who have filed lawsuits against the Swiss government over its abrupt takeover of troubled bank Credit Suisse.
In March, the Swiss government forced Credit Suisse to merge with its major rival UBS amidst apprehension that it could collapse.
The move rendered bonds worth $17bn (£13.5bn) held by investors ‘useless’.
“Everything unravelled so quickly,” a bondholder in Singapore told the BBC on the condition of anonymity.
He had been a long-time customer of Credit Suisse, and in January he purchased bonds for around $500,000 despite the bank’s recent history of scandals and compliance issues.
“The bank assured me again that this was only a hiccup whenever I spoke to them, so I decided to move forward. I didn’t feel like I was playing the slots.
Companies raise the money they require by selling bonds to investors, who are then paid back over time with a premium.
The AT1 bonds, also known as contingent convertibles, are the kind of bonds he purchased from Credit Suisse. They typically offer investors high yields, but are regarded as some of the riskiest bonds that banks issue.
Investors are aware that in extreme cases, such as when UBS was instructed to acquire Credit Suisse, this sort of debt may be written down to zero.
Though it hasn’t directly addressed the lawsuit, the Swiss financial watchdog Finma stated in March that “the contractual conditions” for a write-down had been satisfied.
According to them, a “Viability Event”—in this example, the exceptional liquidity support provided by the Swiss government to Credit Suisse on March 19—can cause AT1 bonds to be wiped out.
Nevertheless, several individual bondholders from Singapore have joined the thousands of disgruntled retail investors suing the Swiss government. Lawyers claim that they have received a flood of inquiries.
The way the merger was handled is the principal complaint of the bondholders.
Their main argument centres on who received precedence when the bank failed. Bondholders are, wherever feasible, expected to be reimbursed first, followed by shareholders, according to the provisions of the bonds, which the BBC reviewed.
However, in reality, investors were allowed to exchange their Credit Suisse shares for UBS shares, albeit at a significantly lower price.
