Credit Suisse: Investors question $17 billion in debt relief

Credit Suisse bondholders have taken legal action in Switzerland to challenge the local regulators’ decision Write off $17 billion of CoCo debtas part of the takeover of the bank by rival UBS last month.

The measure wiped out $17 billion (more than 85 billion reais) of risky Swiss bank bonds. Known as CoCo bonds (Contingent Convertible Bonds), additional Tier 1 bonds (AT1) were introduced in Europe after the 2008 global financial crisis to act as a ‘buffer’ when banks collapse.

Investors who hold about 4.5 billion Swiss francs (more than $5 billion) in forgiven Credit Suisse debt want the ruling overturned or changed, according to a draft complaint filed with a Swiss administrative court The Wall Street Journal had access.

The cancellation disproportionately harmed the holders of these “turned to dust” debts and violated their property rights, the summary of the court case said.

debt relief

In March, Swiss authorities canceled the $17 billion worth of bonds as part of the Credit Suisse bailout. The move came as a surprise, given that the bank’s shares would typically have to go to zero before creditors absorb the losses (because shareholders are more at risk than creditors).

But Switzerland’s financial regulator ruled that the $17 billion worth of bonds could be called because UBS’s takeover of Credit Suisse was backed by the government. In addition, on March 19, the same day UBS took control of the bank, Swiss lawmakers gave the regulator emergency powers to write off bonds.

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