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Over 100 Credit Suisse bond holders in S’pore join lawsuit to seek $100 million in restitution

Over 100 Credit Suisse bond holders in S’pore join lawsuit to seek $100 million in restitution

Source: Straits Times
Article Date: 09 May 2023
Author: Colin Tan

Many investors joining the class action suit bought one lot of the Credit Suisse AT1 bonds, which was priced at US$200,000.

Some 100 investors have joined a class action to recover about $100 million in losses stemming from the collapse of Swiss lender Credit Suisse and the subsequent wiping out of their Additional Tier-1 (AT1) bond holdings.

The largest local group is made up of mostly Singaporeans, and law firm Withers said that their numbers are growing by the day. 

In the emergency takeover of Credit Suisse by rival UBS in March, Swiss regulator Finma had ordered 16 billion Swiss francs (S$23.8 billion) of the troubled bank’s AT1 bonds to be written down. The move angered holders globally, given that bond holders typically sit higher on the priority ladder than shareholders when it comes to repayment in a bankruptcy. Instead, holders of the Credit Suisse AT1 bonds – also known as contingent convertible bonds – received nothing, whereas shareholders received US$3.23 billion (S$4.3 billion).

The investors who have joined the class-action suit under Withers are mostly in their 50s who said they have been striving to save for their retirement. Many of them bought one lot of the Credit Suisse AT1 bonds, which was priced at US$200,000.

“Just because we have a pot of hard-earned money that qualified us to buy a broader range of financial instruments did not make us more financially savvy,” said a 55-year-old businessman from the manufacturing sector who spends much of his time abroad.

Most investors interviewed saw themselves as having a conservative risk profile.

Under ordinary circumstances, it would have been reasonable for banks and financial institutions to recommend most types of bonds to such investors, as bonds are considered a safe asset class.

However, as the CS AT1 bond contained a clause which, when triggered, would wipe out its value, many of the investors felt that it should not have been sold to them. Some claimed that the clause was not highlighted to them.

A Malaysian homemaker who bought about $1.25 million worth of AT1 bonds told The Straits Times that she borrowed $200,000 in 2022 for the purchase.

She felt she was wrongly profiled by her bank’s relationship manager, whom she said had filled out her forms on her behalf. These forms typically cover various areas, such as trading services and an analysis of one’s financial needs.

A 54-year-old self-employed man said that he had signed a stack of blank forms that his relationship manager subsequently filled in for him. He claimed he was unaware that the documents had categorised him as an aggressive risk-taker until after the bonds turned worthless.

While the self-employed man has joined the class action, the housewife did not because she could not afford to pay the upfront fee.

An investor in his 50s who runs his own business said that he plans to sue the banks and financial institutions that had sold him the bonds for potential misrepresentation and mis-selling.

According to him, the relationship manager was not proficient in her knowledge about the bonds, and did not adequately highlight their risks. When news about the bank’s financial problems started to surface, she continued to tell him not to worry, “and I was naive enough to believe her“, he said.

Meanwhile, the class action being led by Withers is expected to be filed by the end of this month.

“We are adopting a Singapore-centric approach, with emphasis on rights arising from the Singapore-Switzerland free trade agreement,” said Mr Shaun Leong, a partner at the firm.

He added that the firm had organised a townhall and had reached the milestone because of the work “we have been doing since the Credit Suisse collapse”.

The Straits Times understands that the class action focuses on the free trade agreement signed in 2003 between Singapore and the European Free Trade Association (EFTA), which includes the Swiss state.

The terms of the agreement lays out how each signatory has to “create and maintain stable, equitable, favourable and transparent conditions for investors of the other parties to make investments in its territory”.

There are also guidelines for how investors should be treated should they suffer losses, while also prescribing amicable avenues for conflict resolution, including private consultation or conciliation and, at the last resort, public arbitration.

Similar class-action suits are under way in other countries where the EFTA had signed similar agreements. In Singapore, law firms WilmerHale and Engelin Teh Practice were also seeking redress for smaller groups of investors based on the same approach.

While Mr Leong declined to speculate on the class action’s chances of success, industry observers feel that there is a decent chance that the Swiss state may choose to settle, citing a precedent where such a settlement was reached.

“An open, ugly fight would send the wrong message to Asian investors and tarnish Switzerland’s image for investments,” said one.

Potential routes for Credit Suisse AT1 bond holders

Based on interviews with Credit Suisse bond holders in Singapore, these are some possible options that they can take to seek restitution, if they choose not to walk away from their losses.

1. Suing local bank/financial institution directly

  • High upfront cost
  • Needs sufficient evidence of mis-selling, misrepresentation, etc
  • Makes sense only if the capital amount far exceeds the anticipated legal costs
  • Outcome will depend on the judgment, or the bank or financial institution may decide to settle if the evidence is compelling enough

2. Joining others in a class action based on breach of trade agreement

  • Focus is on the breach of the European Free Trade Association (EFTA) free trade agreement between Singapore and the Swiss state
  • Low upfront cost as part of a larger group
  • Resolved through amicable private process and arbitration
  • Settlement is expected to take between one and three years

3. Joining others in a class action to overturn Swiss regulator’s decision

  • Via lawsuits to overturn Switzerland’s independent financial-markets regulator Finma’s move to prioritise shareholders ahead of bond holders
  • Low upfront cost as part of a larger group
  • Expected to take several years to resolve
  • Outcome uncertain as overturning Finma’s action does not guarantee a recovery of the investors’ capital 

Source: Straits Times © SPH Media Limited. Permission required for reproduction.


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