The Federal Council emergency law decision leads to hundreds of lawsuits against the federal government. Answers to the most important questions.
While there were four on Thursday, the Federal Administrative Court was literally flooded with complaints on Friday, as confirmed by SRF. The court assumes that there will be several hundred plaintiffs who will object to the decision of the Financial Market Authority (Finma).
At the heart of the legal dispute are the write-downs of the so-called AT1 bonds. Credit Suisse has issued these over the past ten years to secure equity at various interest rates of around 3.8 to 9.8 percent. The bonds had a total value of 16 billion Swiss francs. But with the CS rescue, they became worthless due to a Finma decree.
What products are you talking about? Additional Tier 1 (AT1) bonds are a special type of obligation. Investors make a loan to a company and receive interest in return. If the company is no longer able to cover its debt sufficiently, AT1 bonds will automatically convert into shares at a certain point. If bankruptcy occurs, conventional bondholders could still receive money. But only if something remains in the bankruptcy estate after priority obligations such as wages or pension fund contributions have been paid. The AT1 investors, on the other hand, lose – like all shareholders – all their money. In the case of CS, however, there is a special feature: the AT1 prospectus provides that AT1 bonds can be written off to zero if the federal government has to support CS.
What are the plaintiffs complaining about? The four plaintiffs, who were known as of Thursday, owned AT1 bonds worth 4.5 billion francs. Among other things, they complain that their write-down would not have been necessary because CS always met the regulatory capital requirements. It had been clear since October 2022 that CS was not in a liquidity or capital crisis, but in a crisis of confidence. In principle, a write-down is possible with state support, but only if this leads to a direct improvement in capital resources. That was not the case here.
How are these complaints to be assessed? It is currently difficult to assess the success of these lawsuits, and in fact not all questions about the hasty implementation of emergency law seem to have been finally clarified. Should the plaintiffs prevail in court, it would theoretically be possible for taxpayers to face claims for damages in the billions or even for the AT1 bonds to be written off.
Legend:
CS continues to make headlines, most recently with reports of bondholder lawsuits.
KEYSTONE / Michael Buholzer
Are there more lawsuits? According to media reports, numerous investors from Singapore and apparently also from other countries are planning lawsuits against the Confederation based on a state treaty that protects foreign direct investments in Switzerland. Such lawsuits would not be judged by the Federal Administrative Court, but by an arbitral tribunal specially set up for this lawsuit. This consists of three people, one each from the plaintiff and defendant side, who would then have to agree on a third person to chair the committee. Proceedings and verdict are secret. The verdict is final, there is no appeal. To what extent AT1 bonds qualify as direct investments is likely to be the sticking point for such a lawsuit.