Could Credit Suisse’s AT1 Wipeout End Up In Court?

The deal to save Credit Suisse Group AG through a hastily arranged marriage with UBS Group AG staved off a full scale banking collapse, but left one set of investors poorer, and angry. Holders of $17 billion worth of junior debt known as Additional Tier 1 bonds, or AT1s, saw their holdings wiped out. The notes were risky and designed to be written down in the event of Credit Suisse needing capital in a hurry. Holders argue that they were treated unfairly and are looking for legal remedies.

UBS agreed to pay 3 billion Swiss francs ($3.3 billion) to buy Credit Suisse, the Swiss government offered to guarantee losses on some of the stricken bank’s assets and the country’s financial regulator, Finma, said its AT1 debt would become worthless. The arrangement, allowing Credit Suisse shareholders to recoup some value while wiping out the AT1s, upended financial tradition as equity holders are usually the first in line to absorb a struggling bank’s losses.