AllianceBernstein to Sue Switzerland Over $17 Billion Credit Suisse Debt Writedown

A major American institutional investor is planning to join a lawsuit that says Switzerland’s time to pay up is long fondue — er, overdue.

AllianceBernstein will seek $225 million in the case demanding the Alpine country compensate investors after it wiped out $17 billion of troubled Credit Suisse’s debt amid a government-arranged takeover by rival UBS, according to a Financial Times report.

The Name’s Bond, AT1 Bond

At the eye of this legal storm is the additional tier one (AT1) bond, also known as a “contingent convertible” or “CoCo” bond. The $245 billion sector consists of risky bonds — the investor upside being a higher coupon — that can be converted to equity if a bank’s capital holdings dip below regulatory requirements, essentially acting as shock absorbers for stress. 

They can also be written off, which Credit Suisse bondholders learned the hard way. After the bank collapsed in March 2023 following too many scandals to list (seriously), the Swiss government oversaw a merger with UBS that included the highly unusual decision to pay $3.2 billion to shareholders and absolutely nothing to Credit Suisse’s $17 billion worth of AT1 bondholders. Usually, bondholders in Europe under the Basel III framework are first in line for scraps when an institution fails.

And so, arguing there was “an unlawful encroachment” on their property rights, a group of Credit Suisse AT1 Bondholders filed a lawsuit in US federal court against Switzerland in June. They sought not Emmental, Gruyère or Appenzeller, but at least some of the owed cheddar. The FT reported Tuesday that AllianceBernstein, which manages $800 billion, will join the fray:

• The lawsuit is unusual because countries typically have investment treaties, but the famously neutral Swiss don’t have a treaty with the United States or many countries where Credit Suisse AT1 bondholders are domiciled. Quinn Emanuel, the law firm leading the case, is good at taking on countries, having won a $1.5 billion bond case against Argentina in a UK court last year.
• The $225 million in damages sought from Switzerland by AllianceBernstein would bring the lawsuit’s total to $375 million, sources told the FT.

Alpine Obstruction: Last week, the Swiss government filed a motion to dismiss the case, arguing it has sovereign immunity and that the lawsuit should take place in Swiss court, where it would presumably have the backing of regulators who have defended the controversial decision to wipe out the AT1 bonds.