Zurich,Switzerland - A ruling by the federal Administrative Court has dealt a significant blow to Swiss financial regulator Finma,siding with investors challenging the controversial write-off of $18.1 billion (16.5 billion francs) in Credit Suisse’s Additional Tier 1 (AT1) bonds during the UBS takeover. The court found Finma’s decision to wipe out the bonds was not justified.
The case centers on whether the AT1 write-down genuinely strengthened credit Suisse’s capital position, a prerequisite for such a move. Investors argued the write-off served primarily to benefit UBS, not to bolster Credit Suisse’s solvency, particularly as finma and the Swiss National Bank had declared on March 15, 2023, that Credit Suisse *had* sufficient capital.This ruling throws into question Finma’s authority and could open the door to further legal challenges and potential compensation claims from bondholders.
AT1 bonds, introduced after the 2008 financial crisis, are designed to absorb losses and prevent taxpayer-funded bank bailouts. Investors accept a higher interest rate in exchange for the risk that their bonds may be written down if a bank’s capital falls below a certain threshold. The plaintiffs maintained that the conditions for triggering a write-down were not met when UBS acquired Credit Suisse on March 23, 2023.
Investors contend the write-off of the 16.5 billion francs in AT1 bonds did not improve Credit Suisse’s capital base, but instead transferred value to UBS. The Federal Administrative Court’s decision represents a major setback for Finma, which had originally ordered the write-off. The ruling’s implications will be further examined as the case potentially moves to the next instance, the Federal administrative Court.
Liz Horowitz Rüttimann, Business editor
