Davide Serra, founder of Algebris Investments, said the move was a “policy mistake” by the Swiss authorities, who had “basically stolen” the bonds while facilitating a SFr3b (US$3.2b) payment to shareholders.
Jérôme Legras, head of research at Axiom Alternative Investments, which holds Credit Suisse AT1s, said the move could undermine trust in financial markets. “It’s more than a pure legal issue — it’s about market confidence and how you treat investors fairly.”
US law firm Quinn Emanuel said on Monday it was in discussions with several bondholders “representing a significant percentage of the total notional value of AT1 instruments issued by Credit Suisse” over possible legal action. It added that an investor call to explore “potential avenues of redress” was likely to take place on Wednesday.
AT1s are often called “contingent convertible” bonds and have their roots in the 2008 financial crisis. They are designed to take losses when institutions run into trouble.
As global banks’ debt sold off on Monday, other countries’ regulators intervened to say they would not follow the Swiss model in resolving distressed banks.
The European Central Bank said “common equity instruments are the first ones to absorb losses” while the Bank of England said AT1 bonds ranked ahead of equity and would face losses “in the order of their positions in this hierarchy”.
The backlash came despite the fact that Credit Suisse’s bond documentation made it clear that Swiss regulators were not “required to follow any order of priority”.
In volatile trading, shares in struggling Californian bank First Republic tumbled more than 33 per cent. UBS recovered from a 14 per cent slump shortly after markets opened to close 1.3 per cent higher, though on Monday evening S&P cut the bank’s credit rating outlook to negative, citing “material execution risk in integrating CS”.
Among the beneficiaries of the deal are Credit Suisse staff who hold stock and have also been told they can receive a bonus in the coming weeks. “We will continue to allocate for a 2023 performance bonus for those eligible,” wrote Credit Suisse chair Axel Lehmann and chief executive Ulrich Körner in an internal email.
However, the acquisition price is a steep 59 per cent discount to the bank’s closing share price before the deal and some bankers have also been paid in the now worthless AT1 bonds.
Many are braced for job cuts, which are expected to number in the thousands. Managers said they would “work diligently and at pace” to inform staff and “aim to continue to provide severance in line with market practice”.
Swiss investors have said they will consider legal action over the government’s use of emergency measures that meant shareholders did not get a vote on the transaction. Ethos Foundation, which speaks on behalf of pension funds and other institutional investors that own up to 5 per cent of both banks, said the takeover was “a huge waste for the shareholders and the Swiss economy”.
Swiss politicians are being balloted on an emergency sitting of the country’s parliament to scrutinise and potentially block elements of the takeover by UBS.
- Additional reporting by Emma Dunkley and Katie Martin
Written by: Nikou Asgari, Harriet Agnew, Owen Walker and Sam Jones
© Financial Times
