Credit Suisse: the national regulator sued by bondholders

They were supposed to be more protected from banking risks than the shareholders themselves. However, during the takeover of Credit Suisse by rival UBS, bondholders of the acquired bank saw the value of their assets melt away. The Swiss Financial Market Supervisory Authority (Finma) had indeed demanded that 16 billion Swiss francs (17.9 billion dollars) of bonds be erased during the mega-merger of the two largest banks in the country, causing thus angering bondholders. They are expected to receive only three billion Swiss francs, or 0.76 francs per share, against a last closing price of 1.86 francs before the announcement of the agreement. Faced with this net loss, a group of holders of high-risk bonds of Credit Suisse decided to sue the Swiss stock market policeman. Their lawyers made the announcement on Friday, April 21.

The group of Swiss and international investors who sued Finma collectively bear more than a quarter of the erased debt, or 4.5 billion Swiss francs. Law firm Quinn Emanuel filed a formal complaint on Tuesday at the Federal Administrative Court in St. Gallen, northeastern Switzerland, a spokesperson told AFP. "Finma's decision undermines international confidence in the legal certainty and reliability of the Swiss financial center," said Thomas Werlen, the firm's managing partner in Switzerland.

This filing is just "the first in a series of steps we will take to seek redress for our clients who have been unlawfully deprived of their property rights," said Richard East, senior partner in Quinn Emanuel's office. in London. Other lawsuits for the same reason are also underway in Switzerland and other countries. The affected securities, called "AT1 bonds", were created after the 2008 global financial crisis to place the burden of losses on investors rather than taxpayers.

The bank Credit Suisse will publish quarterly results on Monday which will be closely examined to understand the extent of the challenges awaiting its competitor UBS, forced to buy it in an emergency under pressure from the Swiss authorities. Credit Suisse has brought forward the publication of its first quarter results by four days, which will finally be unveiled the day before those of UBS, the number one in the Swiss banking sector. Credit Suisse will organize this time neither press conference nor discussions with financial analysts, contenting itself with a simple press release.

Absorbing Credit Suisse is going to be a complex task and "we don't yet have all the answers we need," Swissquote analyst Ipek Ozkardeskaya told AFP, noting that UBS itself hasn't. not had "time to dive" into the accounts of Credit Suisse, given the speed at which its rescue was completed. Responses to the brewing crisis at Credit Suisse “will come gradually,” said the analyst, who expects UBS to “take control of the situation” as it goes.

Credit Suisse had faced a difficult situation for two years, following a series of scandals that tarnished its reputation. But a wave of panic took hold of the markets in the wake of the bankruptcy of the American bank SVB, which forced the Swiss authorities to organize its rescue hastily. After a weekend of negotiations with the Ministry of Finance, the central bank and the market surveillance authority, UBS agreed to buy its rival for 3 billion Swiss francs on March 19.

These quarterly results which “will probably be the last”, observes Andreas Venditti, analyst at Vontobel, will however provide the first elements of answers. “The market will focus on the magnitude of the outflow of funds through its activities,” predicts the analyst in a market note. Figures are already circulating for asset management. According to data compiled by Morningstar, Credit Suisse recorded some 4.6 billion euros in fund management withdrawals during the month of March, the largest monthly outflows on record.

For the first quarter, Andreas Venditti expects "very weak" results. According to its estimates, Credit Suisse should publish a net loss of around 700 million francs, insofar as a gain of 800 million francs on the sale of securitized products should help limit the damage. Last year, the bank suffered a loss of 7.3 billion francs, contrasting with the 7.6 billion dollars (6.9 billion euros at current rates) in profits generated by UBS. Money outflows at Credit Suisse amounted to 110.5 billion francs in the fourth quarter alone. For UBS, Andreas Venditti, on the other hand, expects a quarterly profit of nearly 1.7 billion dollars, against a backdrop of lower income generated by commissions, "partially offset by higher interest income" with the rise rates. On Tuesday, investors will be on the lookout for additional details on the Credit Suisse takeover. "But we don't expect a lot of additional information, as the transaction is not yet finalized," he said.

Analysts at Zürcher Kantonalbank will also be scrutinizing the effects of rising interest rates on UBS's business. They nevertheless expect a “weaker” quarter for investment banking. However, the figures themselves “will take a secondary place” due to the uncertainties surrounding the merger with Credit Suisse, they warn in a market note. Without this takeover, Credit Suisse would probably have found itself “in cessation of payments on March 20 or 21”, explained the President of the Confederation Alain Berset recently during an extraordinary session in Parliament.