International investors are gearing up for legal action against Switzerland following the controversial decision to write off $17 billion worth of Additional Tier 1 (AT1) bonds linked to Credit Suisse, leaving over 500 investors from Singapore, Japan, and Hong Kong facing significant losses. On February 6, 2023, these investors represented by the law firm Drew & Napier, formally initiated complaints against the Swiss government, claiming losses totaling around $250 million.
The complaints arise from allegations of wrongful conduct, as the Swiss government has been accused of violating its obligations under bilateral investment treaties when it unilaterally annulled the AT1 bonds, rendering them worthless. "They are claiming losses of around $250 million," stated Drew & Napier, highlighting the financial toll on these investors.
This legal move is seen as a pivotal step for the investors aiming to recover their losses from the financial turmoil initiated by the forced acquisition of Credit Suisse by UBS, which occurred under intense pressure to avoid the bank's collapse and safeguard the reputation of Switzerland's banking sector.
According to reports, the legal framework demands the initiation of negotiations for dispute resolution within the next six months before any arbitration proceedings can commence. Drew & Napier has reiterated Switzerland's responsibility to protect investors and provide fair treatment as stated under the bilateral agreements. "Switzerland has the obligation to protect investors' rights and to guarantee fair and equal treatment under the bilateral investment agreements," emphasized Drew & Napier.
To support the investors, Omni Bridgeway, a litigation funding company, has also entered the scene, agreeing to cover legal costs associated with the lawsuit for a share of any recovered damages. This financial backing aims to enable affected investors to pursue their claims without the burden of upfront legal costs.
Mahesh Rai, the senior advisor at Drew & Napier, indicated the broadening scope of this legal challenge by saying, "We are continuing to receive registrations from other investors from Singapore, Japan, and Hong Kong to join the lawsuit and encourage them to do so early next year so they can be included."
Rai also pointed to interest from investors outside the initial group, noting, "We are also seeking to initiate claims to support affected investors from other jurisdictions like Thailand and the Philippines, as many investors from these jurisdictions continue to express interest in this lawsuit we're undertaking."
The backdrop to this legal action traces back to March 2023, when the Swiss government facilitated the acquisition of Credit Suisse by UBS for $3.25 billion, effectively merging the two banks under the urgent desire to safeguard Switzerland's banking reputation amid extensive global scrutiny.
Credit Suisse, once one of the world's major financial institutions, has now become part of UBS. The damage caused by the bond's annulment highlights vulnerabilities within the banking sector and raises questions surrounding investor protections and regulatory practices.
While this legal battle is only starting, its outcomes could significantly influence the future governance of Swiss banking practices and investor relations—the resolution of which remains to be seen as local and international investors await the results of the upcoming negotiation phase.
With eyes on Switzerland, the investors remain determined to see justice served and compensation sought for their losses, embodying the financial strain many faced following the abrupt actions taken within the banking ecosystem, challenging the very principles of equity and accountability they believed were assured.