The fallout from Credit Suisse’s collapse continues as lawsuits targeting Switzerland’s write-off of AT1 bonds intensify. A key legal decision in New York this February could determine the next steps in the escalating conflict.
Time is running out. The Swiss government’s lawyers must respond by February 3 to the legal battle in the New York court over the declaration of AT1 bonds as worthless.
The stakes are high. Quinn Emanuel Urquhart & Sullivan, the leading US law firm handling the case, intensified the lawsuit filed last summer by submitting an amended complaint on January 8.
Claim Value More Than Triples
The updated complaint includes additional plaintiffs and reference material from the Parliamentary Investigation Commission (PUK) report. Notably, the claim value has risen from the initial $82 million to $372 million.
Switzerland is widely expected to seek dismissal of the case by filing a motion to dismiss.
Key Hearing on February 5
The judge’s decision on whether to accept this motion will depend on the second round of submissions from both parties. The initial exchange of documents was little more than a legal warm-up.
A clearer timeline may emerge on February 5 during the Case Management Conference, where the schedule for the proceedings will be determined.
If the judge does not establish a deadline for deciding whether the case will proceed to trial, the plaintiffs may advocate for a binding timeline.
Switzerland on the Defensive
One thing is certain: the New York lawsuit has entered a critical phase. By summer, it will likely be evident whether the case will go to trial.
If it does, Switzerland could face significant challenges. Plaintiffs may demand further disclosures, including chat transcripts, which Switzerland would almost certainly refuse to provide. This would likely trigger a back-and-forth legal battle.
The Parliamentary Investigation Commission’s report already places Switzerland on the defensive. According to plaintiffs, the report contains numerous points that weaken Switzerland’s position. It also highlights that the declaration of AT1 bonds as worthless was a condition for UBS’s acquisition of Credit Suisse, with key roles played by the Federal Department of Finance and the State Secretariat for International Financial Matters.
The report states: «The write-off of AT1 bonds was presented to the Board of Directors as a ‘necessary, non-negotiable element and thus a cornerstone of the deal for UBS’.»
Elsewhere, the report asserts: «The PUK also finds it credible that UBS would have only agreed to the merger with CS without the AT1 write-off if the federal government had provided significantly higher guarantees.”»
Federal Council’s Solo Decision?
The amended complaint claims that the investigation report reveals that the Swiss government unilaterally decided UBS was the only viable buyer for Credit Suisse. Furthermore, it highlights that the AT1 write-off was a key factor in meeting UBS’s demands and finalizing the deal.
UBS required guarantees totaling 25 billion Swiss francs ($28 billion) – a sum the government could not possibly meet. By March 19, 2023, UBS’s position had shifted: the guarantees would consist of 9 billion francs from the Swiss government and the AT1 write-off.
The plaintiffs reference a passage from page 360 of the PUK report, which describes how negotiations unfolded. The CS Chairman criticized the initial offer of 1 billion francs as too low, prompting government representatives to increase it to 2 billion francs, and later to 3 billion francs, as UBS raised its bid after additional guarantees were provided.
Uncertainty in Swiss Legal Proceedings
While both sides in the US are gearing up for trial, the legal process in Switzerland remains unclear. A complaint filed with the Swiss Federal Administrative Court in 2023 is still pending.
According to finews.ch, the court has yet to forward the UBS and FINMA responses to the complainants, and there is no indication of when this might occur. The Federal Administrative Court does not comment on ongoing cases.
