April 14, 2024
Law firm in talks with Credit Suisse bondholders about potential lawsuit after $17 billion wipeout

Law firm in talks with Credit Suisse bondholders about potential lawsuit after $17 billion wipeout

A white-shoe law firm is working with Credit Suisse bondholders to pursue “possible legal actions” after the value of convertible bonds issued by the bank was written down to zero following the takeover of the Zurich-based lender by crosstown rival UBS Group.

Los Angeles-based Quinn Emanuel Urquhart & Sullivan said in a press release Monday that it was in talks with holders of Credit Suisse’s AT1 capital instruments, also known as contingent convertible or CoCo bonds, about options for pursuing a lawsuit or other legal recourse.

The statement didn’t clarify which entities might be involved in any potential litigation. Lawyers from the firm did not respond to a request for comment from MarketWatch.

In the statement, the firm said it had already spoken to bondholders representing a “significant percentage of the total notional value of AT1 instruments issued by Credit Suisse” and planned to hold a call on Wednesday to talk through their options.

Quinn Emanuel has some experience in this area: The firm represented an international group of CoCo bondholders after they accrued more than $1 billion of losses when junior bondholders and equity investors in Banco Popular, formerly Spain’s sixth-largest lender, were wiped out when the bank was sold to rival Banco Santander SAN, +3.34% in 2017.

The deal was orchestrated by Spanish authorities after toxic debt holdings on Banco Popular’s balance sheet nearly brought down the bank. At the time, EU authorities including the Single Resolution Board hailed the rescue as an example of how post-2008 banking regulations were helping to safeguard the financial system, according to media reports.

Some analysts anticipated that the deal between Credit Suisse and UBS would lead to litigation after bondholders were wiped out to the tune of $17.2 billion and shareholders in the Swiss bank were forced to book massive losses from the $3.2 billion deal.

“This deal is bound to generate legal and political resistance,” said Octavio Marenzi, CEO at Opimas, a management consultancy focused on capital markets.

Credit Suisse shares had fallen roughly 90% over the past year before the deal was announced on Sunday, according to FactSet data.

The write-down of Credit Suisse’s CoCo debt sent shock waves through the $275 billion market for these bonds, which typically offer a higher yield to compensate investors for the additional risk. CoCos can be converted to equity if a bank’s reserve capital falls below a given level.

The Invesco AT1 Capital Bond UCITS exchange-traded fund AT1, -5.72% traded sharply lower on Monday, according to FactSet data. Deutsche Bank’s £650 million 7.125% note fell to 66 cents, its largest ever one-day drop, according to a report from Bloomberg News.

Also see: The $275 billion bank convertible bond market thrown into turmoil after Credit Suisse’s securities wiped out

“The UBS-[Credit Suisse] deal might have avoided an immediate risk event, but the AT1 write down has added an uncertainty which could persist for weeks, if not months,” said Mohit Kumar, chief financial economist in Europe at Jefferies.

Read: What are CoCos and why are Credit Suisse’s now worth zero?

“Given the large amount of AT1s outstanding, this would also raise the prospect of losses for other investors and the ability of banks to use them as a funding source in the future,” he added.

UBS UBSG, +1.26% shares trading in Switzerland rose 2.3% on Monday after reversing earlier losses, according to FactSet data.


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