Swiss Court Ruling on Credit Suisse AT1 Bonds May Favor limited Bondholder Recovery
Zurich – A Swiss court’s decision to overturn a regulatory order that wiped out Sfr16.5 billion ($20.53 billion) of Credit Suisse’s Additional Tier 1 (AT1) bonds 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 ”annulment” and declaring something “null and void,” a nuance that will determine the scope of potential payouts.
The Swiss Financial Market Supervisory Authority (Finma) originally ordered the write-down of Credit Suisse’s AT1 bonds as part of the emergency rescue orchestrated by UBS in March 2023. While the court found Finma’s process flawed, the ruling doesn’t automatically reinstate the bonds’ original value. Instead, it compels Finma to reassess its decision, perhaps leading to a revised write-down amount or, in some cases, partial recovery for bondholders.
The core of the legal debate centers on whether the bonds were legitimately written down, or if the entire process should be considered invalid from the start. According to Swiss law, “annulment” implies a flawed procedure but doesn’t necessarily erase the original 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 say the write-down was illegal,it said the way it was done was illegal,” explained a legal source familiar with the case. “This is a crucial difference. It opens the door for bondholders to argue for a fairer outcome,but it doesn’t guarantee they’ll get back everything they lost.”
Analysts estimate that approximately one-third of the AT1 bondholders may have a strong legal basis to claim for further compensation,especially those who can demonstrate significant financial harm as a direct result of the write-down. The remaining two-thirds may find their claims less compelling,given the complexities of Swiss law and the court’s limited scope of review.
The ruling is expected to trigger a wave of legal challenges from AT1 bondholders seeking to maximize their recovery. Finma is currently reviewing the court’s decision and will announce its next steps in due course. Investors seeking further information can contact info@risk.net.