Parties on opposing sides continue to stake out battle lines over the write-off of Credit Suisse's AT1 bonds. Enter the head of the Swiss National Bank.

Consternation, bafflement, and outrage followed the controversial March decision requiring a federally mandated complete write-off of about $18 billion in AT1 bonds as part of a government-mandated takeover by Credit Suisse.

The Swiss National Bank, financial regulator Finma, and the federal government used emergency legislation to wipe out the securities, which were created following the 2008 financial crisis. In Switzerland, they are designed to be written down or converted into hard-core capital before the affected bank's equity is completely depleted or written down.  

Outraged bondholders have initiated lawsuits, including against Finma saying they should have been made whole before those with an equity stake. As finews.com reported, one US law firm has lined up over a thousand plaintiffs in a class action suit against Finma.

Read the Fine Print

On March 23, Finma defended the decision, saying that Credit Suisse had received an extraordinary liquidity grant when b being rescued. Moreover, the Swiss Federal Council enacted an emergency ordinance (PLB-NVO) for both the additional liquidity assistance loans and granted federal default guarantees on the liquidity assistance loans of the Swiss National Bank (SNB) to systemically important banks. Given that, Finma said it had the authority to order Credit Suisse to write off the loans.

Now the chairman of the Swiss National Bank's Governing Council, Thomas Jordan, is weighing in. According to a «Bloomberg» (paywall) story, Jordan said at a symposium at the University of St. Gallen on Friday that  AT1 investors should have been aware of the risks.

«In the AT1 issue the legal setup was very clear,» Jordan said. «It is not something where investors can say it was not foreseen to be used under those circumstances,» he said according to the report.

No doubt more battle lines will be drawn – but it looks like both sides will have their day in court.