Law students from the European Union are reporting for JURIST on law-related events in and affecting the European Union and its member states. Ciara Dinneny is JURIST’s Chief European Correspondent and a trainee with the Law Society of Ireland. She files this dispatch from Dublin.
Rival Swiss bank UBS bought Credit Suisse bank late last month in a move intended to protect the global banking system and to prevent Credit Suisse from collapsing. Its near collapse immediately prior to the collapse of Silicon Valley Bank and Signature Bank in the United States frightened regulators and investors worldwide and led to the US government taking measures to stabilize the financial system.
The near collapse of Credit Suisse is attributed to several scandals that the bank has faced in recent years. In 2019 Credit Suisse faced a spying scandal after private detectives retained by the bank reportedly spied on an outgoing wealth management executive, causing the then-CEO to resign. In 2021, Archegos Capital and Greensill Capital collapsed, leading to $1 billion in losses for Credit Suisse. In 2022, Chairman Antonio Horta-Osorio resigned from the company following news that he broke COVID-19 quarantine regulations. In 2022, Credit Suisse was fined for failing to prevent money laundering. Shares in Credit Suisse continued to plunge following these debacles, with shares having lost more than 75% of their value in the last 12 months. This resulted in Credit Suisse borrowing up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank in mid-March 2023. This came following statements from Saudi National Bank, a top lender, stating it would not be able to provide further assistance.
The Swiss government orchestrated and brokered the UBS takeover of Credit Suisse, stating that it “welcomes the planned takeover.” The Swiss government implemented several measures to assist with the takeover. This included AT1 bonds being written to zero as part of the deal, meaning that holders of AT1 bonds will not receive anything from the deal. This measure has been regarded as controversial as while a trigger event does allow for bonds to be written down, it is understood that typically creditor hierarchies would be followed meaning that equity would sustain the first losses. This has caused a public outcry as regulators were concerned about the impact on other banks’ ability to raise capital.
Additionally, the emergency ordinance issued by Swiss financial authorities allowed the need for a shareholder vote to approve the deal to be bypassed. As part of the deal, shareholders of Credit Suisse are expected to receive one UBS share for every 22.48 they had in Credit Suisse.
The Swiss Federal Prosecutor said on Sunday that they are investigating potential breaches of Swiss criminal law by government officials, regulators and executives at the two banks, which agreed on an emergency merger. The prosecutor, Stefan Blättler, has issued a number of “investigatory orders” to government bodies.
California-based global litigation firm Quinn Emanuel Urquhart & Sullivan announced Monday that it has been retained by a group of AT1 bondholders and they are seeking compensation and taking potential legal action on their behalf.