Credit Suisse’s Japan bondholders seek arbitration over AT1 wipeout

Nikkei Asia | 11 May 2023

Credit Suisse’s Japan bondholders seek arbitration over AT1 wipeout


PARIS/LONDON — Japanese investors will soon file a request for arbitration regarding Credit Suisse’s Additional Tier 1 bonds, Nikkei has learned, on grounds that wiping out the high-risk AT1 debt as part of the embattled bank’s rescue violated an economic partnership agreement between Japan and Switzerland.

Japanese firm Masuda & Partners Law Office has begun preparing the claim against the Swiss government on behalf of investors in collaboration with Singaporean law firm Drew & Napier. The request will be submitted either to the World Bank’s International Centre for Settlement of Investment Disputes, or to the United Nations Commission on International Trade Law.

Dozens of bondholders could join the legal action. This will be the first public instance of a Japanese law office taking action on behalf of Japanese investors regarding the Credit Suisse bonds.

The case hinges on the economic partnership agreement signed by Japan and Switzerland in 2009, which includes protections regarding financial investments. Drew & Napier is also working with investors from other Asian countries that have signed similar pacts with Switzerland.

Credit Suisse in March reached a deal for an emergency takeover by compatriot UBS and liquidity assistance from Swiss National Bank, the country’s central bank. As part of the deal, the Swiss Financial Market Supervisory Authority (FINMA) instructed Credit Suisse to write down 16 billion Swiss francs ($18 billion) of AT1 bonds in accordance with an emergency government ordinance.

Numerous investors across the U.S., Europe and Asia have filed lawsuits over the move. Quinn Emanuel Urquhart & Sullivan is representing bondholders from the U.S., the U.K., the Middle East and Singapore against FINMA.

At least 100 lawsuits have been filed from around the world in the Swiss Federal Administrative Court over the bonds, local media has reported. The majority of these cases are against FINMA. But investors basing their arbitration claims on the cross-border economic partnership agreements are challenging the Swiss government.

FINMA has defended its decision, saying that AT1 bonds issued by Credit Suisse "contractually provide that they will be completely written down in a ’Viability Event,’" such as when the bank receives extraordinary government support.

source: Nikkei Asia