The sweep of Credit Suisse bondholders was illegal, according to court rules

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A Swiss court has ruled that the decision to write off 16.5bn Swiss francs (£15.5bn) of Credit Suisse’s Additional Tier 1 (AT1) bonds as part of a government-organised bailout was illegal.

The case was brought by about 3,000 investors across 360 cases after the Swiss financial supervisory authority ordered Finma to write off the bonds in March 2023, as part of Credit SuisseEmergency rescue by UBS.

Swiss Federal Administration The court said Finma has no clear legal basis for this step. The court found that the regulator’s decision was invalid, but did not decide whether the bonds should be returned or repaid.

Finma’s decision was controversial because while AT1 bondholders were wiped out, it allowed Credit Suisse shareholders to retain some value, reversing the usual arrangement in which investors bear losses.

The decision divided the market, with some claiming that the bond owners were sophisticated investors and should have been aware of the possibility of the bonds being delisted.

In a ruling published on Tuesday, the judges found that the legal and contractual conditions for delisting had not been met. The court ruled that Credit Suisse, now part of UBS, was still adequately capitalized at the time and the government’s liquidity support did not constitute a “sustainable event” that would have resulted in an aggregate loss of AT1.

It also found that there was no solid legal basis for Finma’s action, ruling that the provisions cited by the regulator were too vague and failed to justify the infringement of investors’ equity.

The ruling can be appealed to the Federal Supreme Court in Switzerland. Other pending legal issues relating to the cancellation of the Credit Suisse AT1 bonds will remain pending until this appeal is resolved.

Finma said it “accepts the partial decision of the Federal Administrative Court to write off AT1 capital instruments” and “will now analyze this decision”.