The banking equivalent of defenestration that befell Credit Suisse might have been sudden, but, the like the run-up, the aftermath is likely to be long, messy and litigious.
A press release from legal gunslingers Quinn Emanuel Urquhart & Sullivan just landed in Alphaville’s inbox. It says the litigation firm is joining forces with a handful of other law firms representing aggrieved investors in various legal jurisdictions.
Here are the firms that will represent irate holders of Credit Suisse’s AT1 bonds, which were nuked by the Swiss authorities when they forced Credit Suisse into the arms of UBS:
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United States — Wollmuth Maher & Deutsch
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United Kingdom — Keidan Harrison
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Singapore — Engelin Teh
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Gulf Cooperation Council — Global Advocacy and Legal Counsel
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Switzerland — Geissbühler Weber & Partners
Quinn Emanuel had already filed a suit in St Gallen earlier this month. It now makes sense to corral most of the irate CS AT1 bondholders into one group, even if they might be different in type and potentially have differing legal avenues for redress.
For example, some are based in countries that have signed a variety of investment treaties with Switzerland that offer at least plausible protection from expropriation. The lack of any continental European representation in the list above might indicate that this group has concluded they don’t have any real avenues for redress? Or perhaps they’re all in the UK one.
Anyway, in the statement Dennis Hranitzky, the head of Quinn Emanuel’s sovereign litigation practice, made a big deal out of the joining of forces of institutional and retail investors:
The unlawful action of FINMA has had devastating consequences on thousands of retail and small investors globally. While the headlines to date have focused on larger institutional holders, it is important to recognize the impact this has had on the savings of many individual investors who have been unlawfully deprived of their property rights and also deserve justice. Through this initiative, working with these partner firms, we can extend the reach of the bondholder group to the hundreds of retail investors who have reached out to us since the AT1 wipeout was announced.
OH NO WILL NO ONE THINK OF THE POOR ORDINARY RETAIL INVESTORS WHO INVESTED IN HIGH-YIELDING PERPETUAL SECURITIES EXPLICITLY CALLED ‘WRITE-DOWN CAPITAL NOTES’ AND ISSUED BY A BANK WITH MORE LEGAL TROUBLE THAN THE AVERAGE MAFIA FAMILY?
So how likely are they to win? Former Alphavillain and current FT Switzerland correspondent Sam Jones has gone through the subtle shift in legal tactics from the initial public protestations of bondholders here. Basically:
The law firm has advised bondholders that trying to challenge the constitutional right of the Swiss government to evoke emergency powers, in what was a potentially economically explosive situation, is an unwise legal strategy.
Instead the case hinges on constitutionally-enshrined protections for due process, arguing that Finma’s right to act was conflated by its officials with its necessity to act. The complaint argues that Finma was obliged under Articles 5 and 9 of the Swiss constitution to arrive at a decision “in good faith and in a non-arbitrary manner” and did not do so.
It also argues that Article 36, paragraph 3 was violated, which stipulates that “any restrictions on fundamental rights must be proportionate”. The right to property is a fundamental right in Swiss law. The fact that shareholders were compensated, but bondholders were not, demonstrates that consideration was not given to proportionality, Quinn Emanuel will argue.
It will certainly be an interesting case to follow, but FTAV remembers the post-Greek debt restructuring aftermath well. And as we wrote last month, when it comes to local-law issued bonds, history shows that governments can pretty much do what they please.
In other words, all creditors are subordinated to political expediency. At some point perhaps the Swiss government’s political calculus might change, and AT1 bondholders might be able to get something. But this is unlikely to become another pari passu saga.