By Charlie Conchie
UBS and Credit Suisse are facing potential legal action from investors after the controversial tie-up between the two banks bypassed a vote by shareholders and wiped out $17bn of Credit Suisse bonds.
Two separate groups representing shareholders have now announced they are mulling potential legal action against the banks after being shut out of negotiations and missing out on returns.
UBS’s rescue swoop for its rival saw the Swiss financial markets regulator, known as Finma, write off £13.92bn ($17bn) of Credit Suisse additional tier 1 bonds (AT1), despite bondholders sitting higher than shareholders in a hierarchy of creditors.
The move triggered backlash from burnt Credit Suisse bondholders. In a statement today, litigation firm Quinn Emanuel Urquhart & Sullivan said it had now put together a multi-jurisdictional team of lawyers from Switzerland, the US and the UK to potentially act on behalf of bondholders.
“[The] team are already in discussions with a number of holders of Credit Suisse’s AT1 capital instruments, representing a significant percentage of the total notional value of AT1 instruments issued by Credit Suisse, about the possible legal actions that may be available to them in light of the announcement of the merger between UBS and Credit Suisse,” the firm said.
Quinn Emanuel has previously acted on behalf of Banco Popular bondholders after it was acquired by Santander in a deal that also saw AT1 and AT2 bonds written down to zero.
Finma’s move to prioritise shareholders prompted statements from central bankers across Europe contradicting the decision. The ECB and Bank of England both doubled down on their commitment to the priority of AT1 holders.
The move by Credit Suisse bondholders and Quinn Emanuel came as Ethos Foundation, which represents Swiss pension funds, claimed it was “doubly penalised” by the deal after being shut out of a vote and now facing the “dominating position of a single large bank on the Swiss market”.
“Firstly, as shareholders of both banks, they will not be able to vote on the takeover at the general meeting, as a Federal ordinance will allow to derogate from this provision in the Swiss merger law,” Ethos said in a statement.
“Secondly, Swiss pension funds will be confronted in the future, like all clients (pension funds, SMEs, individuals, etc.), with the risks related to a dominating position of a single large bank on the Swiss market.”
UBS would typically have to give shareholders six weeks to consult on the acquisition but the process was expedited to shore up the banks before market open on Monday.
Credit Suisse and UBS did not immediately respond to request for comment.
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