In the complaints proceedings surrounding Credit Suisse's written-off mandatory convertible bonds, the financial supervisory authority has resisted the disclosure of documents. A letter from the authority has now been leaked to the media.
The Swiss Financial Market Supervisory Authority (FINMA) has apparently attempted to withhold important documents from the complainants in the appeal proceedings before the Federal Administrative Court.
This is in connection with the authority's approach to the emergency rescue of Credit Suisse (CS) in March 2023: At the time, FINMA had ordered CS to write off mandatory convertible notes (AT1 bonds) worth the equivalent of almost 16 billion Swiss francs ($17.7 billion) in order to shore up the big bank's capital base.
Acting disproportionately?
Since then, hundreds of holders of the AT1 bonds, including Swiss pension funds, have rallied behind a complaint that was filed with the court in St. Gallen back in 2023. The investors claim that Finma acted disproportionately with the order to write off the AT1 securities and that there may even be an expropriation. In the latter case, the state and thus the Swiss taxpayer would be asked to pay.
As part of the complaint, the investors' lawyers have also asked Finma to make key documents available to them.
Confidentiality jeopardized
In a letter that the regulator allegedly submitted to the Federal Administrative Court last month and which has now been leaked to the British newspaper «Financial Times» (article subject to payment), the regulator defended itself against the release of the documents.
The transfer of confidential procedural documents to the plaintiffs could «permanently undermine» the trust of Finma employees in the confidentiality of the information they share with the supervisory authority, the authority argued in the letter. This would «seriously impair» Finma's supervisory activities.
Threat of proceedings abroad
Finma is apparently also concerned about legal proceedings in other jurisdictions. Preparations are underway in various countries, such as the USA, Singapore, Japan and China. In its letter to the St. Gallen court, Finma warned that the disclosure of the requested documents could help foreign investors to build up their lawsuits against the Swiss state.
«This would greatly increase the risk of uncontrolled dissemination of the procedural documents and lead to these documents being used in arbitration and civil proceedings against the Swiss Confederation or the bank (Credit Suisse), thus circumventing the procedural rules applicable to civil proceedings,» the newspaper quoted from the letter.
When asked by the Financial Times, the Swiss authorities explained that they were not conducting the proceedings in public.
«This is a joke»
The secrecy naturally goes down badly with the complainants, who are represented by international law firms. Finma's reference to a possible threat to the state caste is likely to confirm the suspicion abroad that Switzerland is trying to hold itself harmless in connection with the CS debacle and is bending, if not breaking, the law in the process.
«It's a joke,» one investor is quoted by the British newspaper as saying about Finma's arguments.
It is still unclear when the Federal Administrative Court will rule on the appeal; the ball is now in the court's court in St. Gallen after the deadline was extended.
