Two days after UBS’ trial purchase of Credit Suisse, and some stability in the markets achieved after a turbulent few days, analysts are now warning of the possibility that Credit Suisse shareholders and investors, especially bondholders, file lawsuits against a trade in which they were the big losers.
Attention now shifts especially to Owners of AT1 relative risk bonds in the amount of 16,000 million Swiss francs (16,040 million euros, 17,300 million dollars), and which after the operation saw how these investments were reduced to zero by the hasty purchase.
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O Credit Suisse shareholders, although they suffered losses (The Saudi National Bank, for example, saw its 1.5 billion francs in the Swiss bank’s stake on Sunday as being worth 300 million.) They did not suffer the same situation as bondholdersfor which the value of each security disappeared.
At least a British law firm, Quinn Emanuel Urquhuart & Sullivanit is in negotiations with some of these bondholders to file a lawsuit, confirmed the company in a note sent to EFE. “We have brought together a team of lawyers from Switzerland, the United States and the United Kingdom, already in negotiations with several AT1 holders who represent a significant percentage of the bonds issued by Credit Suisse”, says the statement.
These titles, called coconuts (short for “conventional convertible”) tend to receive priority attention – above even shareholders – in case of compensation for purchases like the one closed on Sunday, but in Switzerland this priority is not mandatory.
The British law firm stated that the case is reminiscent of what happened in 2017 with the purchase of Banco Popular in Spain by Banco de Santanderwhere AT1 bonds also took a loss of $1.44 billion, considerably less than what Credit Suisse is now dealing with.
Quinn Emanuel Urquhuart & Sullivan advanced that Next Wednesday, March 22, there will be an information session with bondholders to inform you by telephone about the possibilities of demand, with specialized assistance from Zurich, New York and London.
Potential litigation draws a lot of attention in a bond market worth more than $275 billion in Europe (276,000 million euros) and that could be punished for investors’ distrust if it loses that priority when it comes to indemnities, as happened in the Swiss case.
Faced with these doubts, the European Central Bank, the European Banking Authority and other authorities have assured that they will continue to give priority to bondholders to the detriment of shareholders.
Swiss analysts see little chance
In Switzerland, analysts point out that the possibilities for this litigation to prosper are limited, since Swiss law does not admit, in principle, collective actions in this situation, which would force each claim of hundreds, perhaps thousands of bondholders to be analyzed on a case-by-case basis. . .
Furthermore, in Switzerland there are also no investor protection entities.another obstacle to litigation.
As for potential shareholder lawsuits, attention is on Saudi National Bank, a big loser in this case after becoming the biggest holder of Credit Suisse shares last year (9.8% of the total) following the rise of capital that the bank desperately threw up in November and December.
For now, the saudi state bank does not seem willing to take legal actionafter stating in a statement that the fall of Credit Suisse did not seriously affect its accounts, representing just 0.5% of its assets and 1.7% of its holdings in other companies.
For shareholders, the losses depend on when they acquired Credit Suisse shares: if they did so at the bank’s peak, in May 2017, when they reached a quotation of 84.19 francs (84.5 euros, 91 dollars), they would have lost more than 99% of that value.
Ethos, another possible front
For now, in the field of shareholders, there remains only the Ethos Foundation, which brings together 220 Swiss pension funds and other institutional investorsthe only one that confirmed contacts with the legal representatives before a possible “clarification of responsibilities for the disaster”.
According to the foundation, the sale of Credit Suisse for 60% less than its market valueat the request of the Swiss government to avoid serious damage to the financial system, it is a “huge waste” for shareholders and for the Swiss economy as a whole, and in this case pension funds are “doubly penalised”.
It should also be taken into account that shareholders were excluded from the possibility of voting in the controversial operation between UBS and Credit Suisse, due to a legal modification approved by the government of Switzerland to close an accelerated purchase last weekendbefore the opening of the bags on Monday.
The measures taken by Switzerland to save Credit Suisse were exceptional: the country’s central bank committed up to 200 billion francs (200.8 billion euros, $216 billion) in liquidity to both banks if needed, a figure that amounts to almost a third of the national GDP.