2023-05-23 19:00:05
U-turn: Credit Suisse no longer defends itself against bond write-offs
In the course of the sale, 16 billion francs in bonds were written off, which also affected employees. CS is now withdrawing its complaint. This is also in the interests of UBS.
CS withdraws its complaint before the Federal Administrative Court against the copyist of its squad’s bonuses.
Photo: Urs Jaudas
It is a surprising decision: Credit Suisse is no longer defending itself against the controversial write-off of its bonds. This emerges from a decision by the Federal Administrative Court (BVGer), which the court published on Tuesday evening. In the course of the emergency takeover by UBS a good two months ago, the Financial Market Authority (Finma) ordered AT1 bonds to be written off by CHF 16 billion.
This time, however, it is not about complaints from investors; parts of the bank’s management are affected. Specifically, people who have received so-called Contingent Cash Awards (CCA) as part of their variable remuneration. These are financial instruments whose profit development works in a similar way to AT1 bonds. From 2019 alone, CHF 268 million would have been due this spring. A total of around CHF 360 million was outstanding at the end of 2022.
Procedure is written off as useless
The dispute between CS and Finma over who would write off the bonds has been going on for some time. The bank argued that Finma’s March 19 ruling that all AT1 obligations lose their value does not apply to the bonuses in the form of CCAs. Among other things, this is because their payment had been decided long before the purchase by UBS. Also, these financial instruments were not issued by the superordinate holding company, but by other companies of the bank to their employees as a bonus.
The top hierarchical levels of CS have already suffered serious losses in terms of bonuses. By decree, the federal government has completely canceled the outstanding variable remuneration of the management, as the bank has received state aid. They were cut in half one hierarchical level below, and by 25 percent one level below. The Finance Department issued a corresponding decree on Tuesday.
If CS goes to court as a future UBS subsidiary, this could put UBS’s record profits into question.
With regard to the CCA, Finma did not accept the objections, whereupon Credit Suisse contacted the Federal Administrative Court on April 24 with a request for precautionary legal protection. On May 9, however, the bank informed the court in St. Gallen that it had decided not to file a complaint after all. CS withdrew its request. The procedure is now being written off as irrelevant, as the Federal Administrative Court writes in its justification. The decision can still be appealed to the Federal Supreme Court.
What exactly triggered Credit Suisse’s change of heart is unclear. UBS is certainly not interested in proceedings involving the AT1 bond writer. The new owner of CS expects a record profit of 35 billion francs after the takeover. Almost half of this is due to the write-down of the bonds in the amount of 16 billion Swiss francs.
If CS, as a future UBS subsidiary, takes legal action against this could ultimately call UBS’s record profit into question. Insiders believe it is possible that UBS is behind the change in strategy at CS. Neither Credit Suisse nor UBS commented on the decision when asked.
A veritable wave of lawsuits was triggered
Finma’s write-off of the bonds has triggered a veritable flood of lawsuits. It is still unclear how the withdrawal of the CS complaint before the Federal Administrative Court will affect possible lawsuits by employees of the bank. They are considering taking action against Finma.
Also outstanding are the complaints from AT1 bondholders who are taking action against the copyist. According to the Federal Administrative Court, around 230 complaints were received, comprising 2,500 complainants. The court did not announce when the first judgment in the matter will be pronounced.
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