Swiss investors holding Credit Suisse’s additional tier 1 (AT1) bonds are intensifying efforts to secure a settlement with UBS, following a landmark court ruling that questioned the legal basis for the SFr16.5bn bond write-off executed during Credit Suisse’s emergency takeover in 2023.
Last month, the Swiss Federal Administrative Court ruled that the order issued by financial regulator Finma — which wiped out the value of Credit Suisse’s AT1 bonds — did not have adequate legal support. Both Finma and UBS have appealed the decision, sending the case to Switzerland’s Supreme Court. The ruling will not take effect while appeals are ongoing.
Investors See Rising Odds of a Settlement
Altana Wealth, a major AT1 bondholder and part of a group challenging the write-off through law firm Pallas Partners, said it now believes a negotiated settlement is increasingly likely.
“Both sides are incentivised to settle before the Supreme Court delivers a final ruling,” said Lee Robinson, founder and CIO of Altana Wealth. He added there was a “high chance” that Finma could ultimately push compensation costs onto UBS.
AT1 bonds are high-risk instruments designed to absorb losses when banks face financial stress. Traditionally, they rank above equity holders. During the Credit Suisse rescue, however, AT1 holders suffered greater losses than shareholders — a move that shocked global markets and disrupted the usual credit hierarchy.
Legal Uncertainty Could Stretch for Years
The court stopped short of deciding whether investors are entitled to repayment. Even if the ruling is upheld, determining compensation could take years. Some analysts believe Finma and the Swiss government may bear responsibility for payouts if the write-off is found unlawful.
UBS has rejected suggestions that it faces additional legal risks. The bank said it sees no need to set aside money for potential costs, maintaining that the AT1 write-down complied with both contractual terms and Swiss law.
Citigroup analyst Andrew Coombs noted that while the case appears to fall primarily under Finma’s responsibility, the ruling creates “a degree of uncertainty” for UBS.
Potential Reversal Would Be Highly Disruptive
If the Supreme Court upholds the lower court’s decision — even without ordering compensation — the consequences could be significant. UBS may be forced to reinstate the AT1 bonds, a scenario lawyers describe as “unscrambling the egg.”
Reinstatement could require UBS to issue new capital, restore the bonds’ legal standing, and pay backdated coupons with interest. The costs could reach several billion dollars and place pressure on the bank’s capital ratios.
A senior financial executive in Zurich said the chances of the Supreme Court supporting the lower court’s ruling were “50-50,” calling the situation “bad for Finma, bad for UBS, and bad for Switzerland.”
Claims Market Surges After Court Ruling
Since the wipeout, Credit Suisse AT1 instruments no longer function as bonds but as claims tied to potential compensation or future reinstatement. Following the court decision, prices for these claims have surged — rising from about 12 cents on the dollar to more than 30 cents as dealers speculate on a favourable outcome.
Lawyer Jonas Hertner, who represents several bondholders, has proposed establishing a special compensation fund financed by UBS but backed by the Swiss state. In exchange, bondholders would agree to drop all legal claims against both UBS and the government.
“Resolving these disputes would be a major benefit for UBS,” Hertner said.
