Credit Suisse investors have filed a lawsuit against the Swiss Financial Market Supervisory Authority (Finma) after their investments were destroyed during UBS' takeover.
Investors representing more than CHF 4.5 billion in Credit Suisse bonds have appealed the Swiss financial regulator's decision to write down CHF 16 billion in AT1 notes.
Higher-risk Credit Suisse bonds were wiped out as part of a government-managed emergency rescue plan that allowed UBS to take over the faltering bank in March.
The CHF 3 billion transaction averted the collapse of Switzerland's second largest bank when clients withdrew funds following the failures of Silicon Valley Bank and Signature Bank.
The merger will also establish one of Europe's largest asset managers, with a combined asset management entity managing $1.5 trillion in assets.
Quinn Emanuel Urquhart & Sullivan filed the action against Finma at St. Gallen's Federal Administrative Court on behalf of bondholders.
Lawyers claim the government concealed information such as why the UBS acquisition was the only viable choice and what negotiations took place to persuade UBS to join.
The legal company has also questioned the regulator's decision to solely award compensation to shareholders, claiming that considerations were not done proportionally, which is a violation of Swiss law.
According to Thomas Werlen, general partner of the law firm, "Finma's decision undermines international confidence in the legal certainty and reliability of the Swiss financial centre."
However, Finma has defended its decision to wipe off the debt, arguing that shareholders normally suffer losses before bondholders in the event of a bank failure.
The contracts for AT1 instruments, according to the regulator, reveal that they can be written down in a "viability event," particularly if government support is required.
Regulators have also dubbed the takeover "the best option" for averting a worse disaster and preserving Switzerland's image as a financial centre.
The Swiss federal prosecutor has initiated an investigation into UBS's takeover of Credit Suisse.
By fLEXI tEAM