Credit Suisse creditors win victory: Federal Administrative Court declares the write-down of AT1 bonds illegal

Creditors of Credit Suisse's AT1 bonds have achieved an unexpected victory. On Tuesday, the Federal Administrative Court in St. Gallen declared the write-down of subordinated bonds totaling CHF 16.5 billion during the emergency rescue of Credit Suisse unlawful.

In a press release, the court described the write-down as a "serious interference with the property rights of the bondholders." This should have been based only on a clear and formal legal basis. However, according to the federal judges, such a basis did not exist.

3,000 complainants in approximately 360 cases had protested the write-down ordered by FINMA and filed appeals with the Federal Administrative Court. The court has now issued a partial ruling in one of these cases. It declares the appeals legitimate and has annulled FINMA's order of March 19, 2023. According to the court's announcement, the other proceedings will now be suspended until the decision annulling the order becomes final.

However, the plaintiffs had not only demanded the reversal of the FINMA order, but also a reversal of the write-down and thus compensation for the creditors. However, the court has not yet ruled on whether such a reversal will take place.

The decision can be appealed to the highest court, the Federal Supreme Court. Whether FINMA will do so remains to be seen. According to a spokesperson for the Financial Market Supervisory Authority, they have acknowledged the partial decision but want to analyze it first before deciding on possible further steps.

The court concluded that the conditions for a write-down of the AT1 bonds were not met because no so-called "viability event" had occurred at the time of the write-down: CS was sufficiently capitalized at the time in question and met the regulatory capital requirements.

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