By John Ikani
Investors in Singapore are gearing up to take legal action against the Swiss government over its decision to write down $17 billion of Credit Suisse bonds, with law firm Wilmer Hale stating that the move breached protections against unfair state actions under the Singapore-European Free Trade Association.
The potential lawsuit in Singapore would open a new front in the legal battles against Switzerland for its decision to wipe out the bonds as part of the bank’s state-sponsored takeover by UBS.
Law firms WilmerHale and Engelin Teh Practice are working with a group of family offices and wealthy retail investors in Singapore whose AT1 bonds were written off as part of the deal.
These risky AT1 debts, designed to take losses when institutions run into trouble, are popular in the region among retail investors, with the investors collectively investing close to $70 million in AT1s.
The Singapore discussions could also lead to similar actions by investors in other parts of Asia, where a large number of wealth managers, private banks and rich individuals had bought the Credit Suisse debt instruments.
At least $750mn of the bonds were denominated in Singapore dollars, with 91% coming from Singapore and another 7% from elsewhere in Asia.
Switzerland’s decision to write down the bonds to zero angered bond investors, especially after it orchestrated a deal where UBS will pay $3.25bn to shareholders.
In contrast with the US, where big funds such as Pimco and Legg Mason were long-term holders of AT1s, Asian investors are typically smaller individuals and enterprises.
The Singapore investors’ holdings ranged from $200,000 to $12mn for some of the family offices.
The potential legal action in Singapore is based on the argument that the Swiss government breached the protections designed to protect foreign investment.
The investors argue that the government acted contrary to their legitimate expectations regarding the hierarchy of claims, with bond holders ranking higher than shareholders.
While some lawyers have cautioned that a Singapore lawsuit was an “uphill battle” and played down the chances of the investors getting their money back, one investor believes it’s better than doing nothing.
He invested $500,000 of his savings in Credit Suisse AT1 bonds at the beginning of the year and wants a front-row seat to the debacle.
Similarly, a retired entrepreneur in Singapore invested $700,000 in the AT1s and felt completely misled over the bonds, stating that “I invested because this was a household brand name. Now I have nothing.”
