Credit Suisse staff prepare to sue regulator Finma over AT1 bond loss

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Credit Suisse staff are preparing to sue the Swiss financial regulator for $400 million in bonds that were canceled after UBS’s bailout of the bank.

thousands of seniors swiss credit The bankers have a portion of their bonds tied to the group’s additional Tier 1 bonds, securities that were wiped out in the Swiss authorities-orchestrated takeover in March.

The law firms Quinn Emanuel and Pallas, which are already suing Swiss regulator Finma on behalf of investors who held the AT1 bonds, have received multiple requests from Credit Suisse senior managers to take legal action on their behalf as well, according to multiple reports. people familiar with the matter

At this point, it is unclear to the lawyers whether the Credit Suisse employees’ claims could be linked to the existing lawsuits filed against Finma or if they should be filed separately, the people added.

“Credit Suisse managers from around the world have contacted us to see how we can help them,” said one person involved in the discussions. “There is a lot of overlap between the two positions, but they are not exactly the same.”

The bonuses date back to 2014, when the bank’s managing director and senior-level staff were offered a contingent capital award as part of their remuneration. The unconventional awards were designed to mimic AT1s, which could be converted to principal or reduced to zero if the bank was in trouble.

CCAs typically make up 10 to 15 percent of a manager’s total bonus and vesting after three years. They also provided two interest payments a year. In 2021, the last year in which they were granted, more than 5,000 Credit Suisse employees received them.

AT1s are a type of hybrid debt instrument created after the 2008 financial crisis to give banks greater capital flexibility in the event of a crisis.

Credit Suisse had initially asked Finma if CCAs could be treated differently from AT1s, but three weeks ago employees were told their premiums would be removed along with AT1s. UBS said this week that book a profit of $400mn of the move once the acquisition is complete.

On Monday, Credit Suisse staff were told they would receive the final interest payment on the CCAs before they were wiped out. Bonuses have taken a hit in other ways, including stock awards, as Credit Suisse’s share price has plunged 93 percent since the start of 2021.

Last month, the ordered the Swiss government that the bonuses of about 1,000 senior bankers at Credit Suisse should be cut. According to the ruling, executive board members had their bonuses cancelled, while lower-level staff took a 50 percent cut. Staff below that level received a 25 percent reduction.

The treatment of the AT1s has turned out to be one of the most divisive aspects of UBS’s $3.25 billion purchase of its rival. quinn emmanuel and Pallas representing investors in separate lawsuits who own more than a third of the $17 billion in AT1 bonds rendered worthless.

In an early victory to the plaintiffs last week in what is expected to be a long-running case, Finma was forced to disclose the decree that wiped out its investments.

The judge overseeing the case, which was filed in the eastern Swiss city of St Gallen, ordered the regulator to hand over the decree, giving AT1 bondholders a stronger foothold to challenge the writedown.

Credit Suisse, Finma, Quinn Emanuel and Pallas declined to comment.