At least 80 Credit Suisse investors in Singapore are in talks to sue the Swiss government over its decision to write down $17 billion of Credit Suisse bonds on the grounds that it violates a free trade agreement.
According to law firm Wilmer Hale, which is in talks with investors, bondholders are preparing to argue that the move violated protections against unfair state actions under the Singapore-European Free Trade Association signed in 2003 with Switzerland. violated.
The potential lawsuit in Singapore would open a new front in a legal battle against Switzerland by UBS over its decision to eliminate bonds as part of a state-sponsored takeover of the bank.
Law firms Wilmarhall and the Angeline Teh practice are in talks with a group of family offices and wealthy retail investors in the Asian city-state, whose additional Tier 1 or AT1 bonds were underwritten as part of the deal.
Riskier AT1 loans are popular in this sector among retail investors. AT1 is a class of debt designed to absorb losses when institutions are in trouble but it is generally assumed that they rank ahead of equity on the balance sheet.
Investors had collectively invested about $70 million in AT1 so far, enough to attract the interest of four global litigation funds, and the number of investors was likely to grow, two people familiar with the discussions said.
The discussions in Singapore could lead to similar actions by investors in other parts of Asia, where large numbers of money managers, private banks and wealthy individuals bought Credit Suisse debt instruments.
At least $750 million worth of bonds were denominated in Singapore dollars, of which 91 percent came from Singapore and another 7 percent from elsewhere in Asia.
Switzerland angered bond investors when the government used an emergency ordinance to write down bonds at zero, even as it struck a deal where UBS would pay $3.25 billion to shareholders. Quinn Emanuel Urquhart & Sullivan and Pallas Partners are among the law firms representing US bondholders that intend to contest the decision.
According to Wilmarhall, unlike the US, Asian countries including Singapore, China, India, South Korea and Japan enjoy unique protections under multilateral treaties designed to protect foreign investment.
“There are arguments that the Swiss government has violated these protections by acting contrary to the legitimate expectations of investors with respect to the hierarchy of claims – that bond holders would rank higher than shareholders,” Jonathan Lim, a partner at Wilmarhall, wrote in an international arbitration. said while concentrating.
Unlike the US, where large funds such as Pimco and Legg Mason were long-term holders of AT1, Asian investors are generally smaller individuals and enterprises. Singapore investors’ holdings ranged from $200,000 to $12mn for some family offices.
Other lawyers cautioned that the Singapore lawsuit was an “uphill battle” and reduced the chances of investors getting their money back.
“I have not closely assessed the merits of this approach, but I would say that it would be a difficult argument to win,” said one international arbitration expert.
An investor who runs a family healthcare business in Singapore invested $500,000 of his savings in Credit Suisse AT1 bonds at the beginning of the year.
He wants the trial to proceed. “I’m not optimistic but it’s better than doing nothing. I want a front row seat to this debacle and hopefully I can learn something,” he said.
A retired entrepreneur in Singapore said he wanted to participate in potential legal action because after investing $700,000 in AT1s he felt “totally misled” on the bonds.
“I invested because it was a household brand name. Now I have nothing.”