The smoke hasn’t cleared from the firestorm surrounding Credit Suisse’s state-sanctioned rescue, and already, the embers of discord are lighting up. Bondholders, having been burnt to the tune of billions, have girded their loins for a courtroom showdown against none other than the Swiss state itself.
A Challenge to Swiss Sovereignty
Law firm Quinn Emanuel is orchestrating the bold move, readying a legal salvo aimed at Switzerland on American soil. Why the U.S., you ask? Insiders whisper it’s because the U.S. judicial landscape might just be more receptive to piercing through the Swiss sovereign shield.
And the motive? Well, it’s not just about the money, even though that’s a substantial $17bn in evaporated Credit Suisse bonds. It’s about principle: the alleged trampling of investors’ property rights.
Rewind to six months ago. Credit Suisse, grappling with stormy financial waters, found safe harbor in an unexpected takeover by UBS. Yet, the contours of this rescue were far from ordinary. Switzerland’s financial watchdog, Finma, gave a nod to wipe out $17bn of Credit Suisse bonds.
This sent shockwaves through the financial world, not least because, in the grand hierarchy of bank debts, Credit Suisse shareholders walked away pretty unscathed, pocketing a cool $3.4bn from the takeover.
It’s no wonder then that Quinn Emanuel, with a reputation for hauling nations into court, swiftly challenged the Swiss regulator. They’re not alone; London’s Pallas law firm is also challenging Finma.
But while these European lawsuits simmer on one burner, Quinn Emanuel is preparing to turn up the heat on another: the American judicial system.
Legal Precedents and Stakes
Quinn Emanuel isn’t new to such audacious moves. They’ve previously tackled giants like Argentina, successfully securing hefty payouts for investors over bond-related disputes. This history sets an intriguing backdrop, hinting at the firm’s confidence in maneuvering such treacherous legal waters.
Yet, suing a sovereign state, especially one as formidable as Switzerland, isn’t business as usual. Many nations shield themselves with investment treaties, making it a tricky proposition to drag them into courtrooms.
But there’s a twist: Switzerland lacks these protective treaties with several nations, including the U.S. This loophole might just be what bondholders are banking on.
The aggrieved party isn’t just a monolithic group of sulking investors. It’s a mixed bag, from retail and institutional investors, who once believed in the long-term promise of Credit Suisse’s AT1 bonds, to more opportunistic hedge funds that swooped in to pick up this debt at a bargain, right before Credit Suisse’s downward spiral.
But here’s where it gets murky. The UBS takeover of Credit Suisse, dubbed the “deal of the century” by some Swiss leaders, was more than just a merger. It was a strategic move to prevent Credit Suisse’s collapse from becoming Europe’s financial nightmare.
While the intent may have been noble, the aftermath is anything but, with disgruntled Credit Suisse investors crying foul, having seen their fortunes dwindle.
Furthermore, the ripples of discontent extend beyond just bondholders. Former Credit Suisse employees have their own axe to grind, particularly after seeing their bonuses worth over $400mn vanish into thin air. Meanwhile, UBS is not immune either, with equity investors launching their own legal tirades in Zurich’s commercial court.
In this high-stakes game, where billions of dollars hang in the balance and reputations are on the line, one thing is clear: the legal wrangling around Credit Suisse is just heating up.
