Staff Writer
About 50 bank employees of Credit Suisse Group AG are suing the Swiss financial watchdog for destroying their bond-based incentives as part of the distressed lender’s state-brokered acquisition by UBS Group AG.
According to a spokeswoman for the Swiss Federal Administrative Court, who declined to provide information on the timing of the claims, the staff is suing over the writedown of so-called contingent capital awards based on a hazardous category of bonds known as Additional Tier-1s.
The staff is divided into three divisions, according to a court official. According to a person familiar with the litigation who spoke on the condition of anonymity, one is represented by the Nater Dallafior company. The law office in Zurich declined to comment.
Since the emergency rescue and UBS takeover in March, one of the legal hot topics has been what would happen to the bond-linked bonuses. Last Thursday, Credit Suisse withdrew an appeal about the writedown of the rewards.
The Zurich-based bank had contended, before giving up, that the CCAs shouldn’t be subject to the wipeout of the AT1s because they weren’t issued by the lender but rather awarded by other firms in the banking group.
Regarding the bankers’ litigation as well as the reasons behind withdrawing their case, Credit Suisse declined to comment. Due to the provisions of the merger agreement, the bank is prohibited from taking any legal actions that would jeopardize the government-brokered rescue.
The lowest rung of bank debt, AT1s were developed following the 2008 financial crisis. They offer lucrative returns when times are good but are the first to be affected when a bank experiences difficulties.
Even stockholders, who are frequently the first domino to fall in such circumstances, were able to recover some value from the takeover planned by Swiss authorities, but holders of Credit Suisse’s AT1 shares received nothing.
Over 2,500 claimants who had the value of their bonds reduced to zero have filed at least 230 challenges with the Swiss federal court.
They contend that, in violation of the rules of insolvency processes, the write-down of bonds valued at $17 billion was an unfair and excessive action that prioritized shareholders above bondholders.
Defenses of the Finma ruling note that the possibility of a writedown was plainly stated in the bonds’ fine print. Finma shied away from discussing the cases.
It previously stated its stance on the writedown, stating that it was a component of a takeover plan that was the least terrible choice after it and the government rejected winding down Credit Suisse or temporarily nationalizing the company.
