Swiss โCourt Ruling on Creditโค Suisse AT1 Bonds May Favor limited Bondholder Recovery
Zurich – A Swiss court’s decision to overturn a regulatory order that wiped โฃoutโค Sfr16.5 billion ($20.53 billion) of Credit Suisse’s Additional Tier 1 (AT1) โขbonds doesn’t guarantee full recovery for all investors, with legal experts suggesting onyl roughly a third may ultimately benefit. The ruling hinges on a critical distinction within Swiss law between โ”annulment” and declaringโค somethingโค “null and void,” a nuance that will determine the scope of potential payouts.
The Swiss โขFinancial Market Supervisory Authority (Finma) originallyโฃ ordered โขthe write-down of Credit Suisse’s AT1 bonds as part of the emergency rescue orchestrated by UBS in March 2023. Whileโค the court found Finma’s process flawed, the ruling doesn’t automatically reinstate the bonds’ original โคvalue. Instead,โ it compels Finma to reassess its decision, perhaps leading toโฃ a revised write-down amount or, in some cases, partial recovery for bondholders.
The coreโ of the legal debate centers on whether the bondsโฃ were โฃlegitimately written down, or โขifโข the entire โคprocess should be considered invalid โฃfrom the start. According to Swiss law, “annulment” impliesโ aโ flawed procedure but doesn’t necessarily erase the โoriginalโ action, while “null and void” signifies the action was never legally valid. The court’s decision leans towards annulment, meaning Finma must revisit its decision-making process.
“The court didn’t โsay the write-down was illegal,it said the way it wasโ done was illegal,” explainedโฃ a legal source familiar with the case. “This is a crucial difference. โIt opens the door for bondholders โto argue for a โfairer outcome,but itโค doesn’t guarantee they’ll get backโค everything they lost.”
Analysts estimate that approximately one-thirdโ of the AT1 bondholders may have a strong legal basis โto โclaim for further compensation,especially those who can demonstrate significant financial harm as a direct resultโฃ of the write-down. Theโ remainingโ two-thirds may find their claims lessโ compelling,given the complexities of Swiss law and the court’s limited scope ofโข review.
The ruling is expected toโข trigger a wave of legal challenges from AT1 bondholders seeking to โmaximize their recovery. Finma is currently โreviewing the court’s decision and will announce its next steps in due course. Investors seeking further information can contact info@risk.net.