Nikkei Asia | 5 September 2023
Hong Kong investors plan AT1 action against Switzerland
by PAK YIU
HONG KONG — Investors in Hong Kong are preparing to file a request for arbitration against the Swiss government for writing off the AT1 bonds issued by Credit Suisse, claiming the move was at odds with a bilateral investment treaty between the jurisdictions, Nikkei Asia has learned.
Chinese law firm Fangda Partners said it was preparing to file the notice of dispute against the Swiss Federal Council on behalf of a group of family offices and retail investors this month, adding to legal action taken by other investors around the region. The request will be filed under the United Nations Commission on International Trade Law and will be the first public instance of Hong Kong investors taking legal action over the Credit Suisse bonds.
Swiss authorities erased the value of Credit Suisse’s alternative tier 1 bonds in March as part of a deal to merge the investment bank with rival UBS. The deal, which controversially protected shareholders over bond creditors, wiped out an estimated $16 billion worth of AT1 bonds.
"Any regulatory changes made in the interest of public order must be non-discriminatory and communicated transparently," Fangda Partners wrote in a note to clients. "The sudden and unilateral decision to write down the AT1 bonds, and the opaque nature of the deliberations leading up to this decision, are at odds with this obligation of fair and equitable treatment under the treaty."
Fangda Partners said it will work with Singapore-based law firm Drew & Napier, which is overseeing related investor action in Singapore and Thailand.
Similar legal action will also be taken in Japan, where investors are preparing to file a request for arbitration against Switzerland under the Agreement on Free Trade and Economic Partnership between Switzerland and Japan.
The bilateral investment treaty between Hong Kong and Switzerland, which came into force in 1994, is intended to provide protections for foreign investors and ensure that Switzerland maintains a stable legal and business framework
Lawyers representing investors say AT1 bonds — which were popular in Asia because they offered higher interest rates than conventional fixed-income securities and which are issued by major banks to protect themselves in times of market turmoil — fall under the treaty’s "protected investments" clause.
Olga Boltenko, a partner at Fangda Partners, said a six-month period follows the filing of a notice of dispute, "during which the Swiss government is expected to seek to find an amicable resolution of the dispute with the investors."
The planned action comes after a group lawsuit filed in Japan last week against brokerage Mitsubishi UFJ Morgan Stanley Securities over the misinformed risks involved in the sale of the AT1 bonds.
Investors across the U.S., Europe and Asia have filed lawsuits against Swiss regulators FINMA. Quinn Emanuel Urquhart & Sullivan is representing bondholders from the U.S., Middle East and Singapore.
The Hong Kong Monetary Authority, the regional financial hub’s de facto central bank, distanced itself from the Swiss authorities’ decision after the merger. It said in March that shareholders in the city would take losses before AT1 holders in the resolution of a financial institution.
Without disclosing the amount of bonds held by Hong Kong investors, the HKMA said earlier this year that exposure was "very limited and extremely insignificant."
