Credit Suisse Investors Challenge Switzerland’s $17 Billion Bond Write-Down

Wall Street Journal. ^ | April 21, 2023 | Alexander Saeedy

[george76]

A group of creditors have filed legal action against the country’s financial regulator, arguing it violated Swiss law when it wrote down around $17 billion of bank bonds

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Credit Suisse Group AG bondholders have launched a legal challenge in Switzerland against regulators’ decision to write down $17 billion in securities as part of UBS Group AG’s rescue of the troubled bank last month.

Bondholders holding about 4.5 billion Swiss francs ($5 billion) of Credit Suisse’s canceled debt want the decision to write down their bonds revoked or amended

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The bondholders are alleging the total write-down was disproportionately punitive to them and violated their property rights,

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The legal action opens a new front in sorting out the financial wreckage from Credit Suisse’s abrupt rescue last month, which has done considerable damage to Switzerland’s reputation for safeguarding wealth.

Markets were stunned when Swiss authorities wiped out the $17 billion in Additional Tier 1 bonds as part of UBS’s $3.25 billion purchase of Credit Suisse in March. Typically, shares in a bank would have to be written down entirely before creditors would have to take losses or be bailed in.

But Switzerland’s financial regulator, Finma, determined that the debt contractually could be written down in the rescue because the government backstopped UBS’s purchase of Credit Suisse in March.

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The write-down by Swiss regulators has curbed market demand for AT1 securities across Europe and Asia,

[Honest Nigerian]

Thanks for posting. I could not imagine how such a huge collection of bonds could decline in value to ZERO. Would truly like to see the economics and math behind this decision.

[Retain Mike]

I just read this passage Jean Ziegler relates in his book titled “The Swiss, the Gold, and the Dead: How Swiss Bankers Helped Finance the Nazi War Machine” With inflation read billions now.

“During the early post war years, a great deal of money from dormant accounts was initially transferred to so-called collective accounts. The same applied to individual safe-deposit boxes.

Then came the day when these assets disappeared into the bank’s “undisclosed reserves”.

A bank has three different balance sheets. The first is the published balance sheet accessible to shareholders. Discussed at the annual general meeting and released to the press, this is the bank’s public report and account. Then there is the balance sheet drawn up for the fiscal authorities. “Undisclosed reserves” are contingency funds set aside to cover losses and bad debts that might, if worst came to worst, endanger the bank’s survival. The third and only “true” balance sheet is known only to the board of directors – in the case of some large banks, to the chairman and his inner circle alone. It is plausible to assume that dormant Holocaust assets worth millions of francs were buried in Swiss bank’s undisclosed reserves immediately after the war.