Pension funds are among the investors that are considering challenging FINMA in court for its decision to write down Credit Suisse’s AT1 bonds, a person familiar with the case told IPE.
Investors have the legal right to challenge FINMA in court within 30 days from the day the Swiss financial market supervisory authority took the decision, the source explained, adding that, because of the Easter holidays, the claim has to be filed by May 3.
“If you challenge the decision and win, the decision is gone; even if you are not successful in challenging the decision as such, and the decision is upheld because of national emergency reasons, investors will likely be able to receive compensation from the government,” the source added.
FINMA was pressed to explain its decision in its 23 March statement, saying that it was based on article 5a of the emergency Ordinance on additional liquidity assistance loans and the granting of federal default guarantees for liquidity assistance loans by the Swiss National Bank (SNB) to banks like Credit Suisse to protect financial stability.
The regulator added in the statement that AT1 bonds issued by Credit Suisse could contractually be completely written down in the case of a so-called “viability event”, in particular if extraordinary government support was granted, like in the case of Credit Suisse.
The lender was given access to two liquidity facilities of CHF100bn each from the SNB, including one backed by a federal default guarantee.
“If, however, existing contractual rules were to allow FINMA to exercise a write down, why would the additional article 5a have been introduced? This all confirms that existing contractual rules were meant to address the issue of capitalisation but were not applicable in the case at hand where Credit Suisse was – as confirmed by FINMA and the Swiss National Bank – never exposed to an issue of inadequate capitalisation,” the source explained.
Therefore, investors are now looking to challenge FINMA’s decision on the basis of article 5a.
Christoph Ryter, the chief executive officer of Migros Pensionskasse (MPK), the pension fund for the Swiss retailer that lost CHF99m (€99.2m) as a result of FINMA’s decision, told IPE that it is examining the possibility of taking legal action for the losses resulting from the regulator’s measure.
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