Landmark Decision: Court Rules Credit Suisse Bond Wipeout Was Unlawful

Swiss court ruling shakes investor confidence and raises questions over emergency banking powers
In a major legal and financial turning point, Switzerland’s Federal Administrative Court has ruled that the forced write-off of Credit Suisse’s Additional Tier 1 (AT1) bonds—worth 16.5 billion Swiss francs—during the bank’s 2023 rescue by UBS was unlawful. The verdict challenges how regulators managed one of Europe’s most dramatic bank rescues and could reshape investor expectations across the global banking sector.

Understanding the Credit Suisse AT1 Bond Wipeout

When Credit Suisse teetered on the brink of collapse in March 2023, Swiss authorities orchestrated an emergency takeover by UBS to stabilize the banking system and protect deposits. As part of that deal, the Financial Market Supervisory Authority (Finma) ordered the complete write-off of the bank’s AT1 bonds—hybrid financial instruments designed to absorb losses in crises.

These AT1 bonds function as a form of contingent capital, helping banks meet regulatory capital requirements. In normal conditions, they act as a buffer between equity and debt, allowing banks to manage risks without affecting depositors or checking account holders. However, Finma’s decision to erase their value—while still compensating shareholders with UBS stock—sparked outrage among global investors and raised questions about the legal framework behind such actions.

Court Ruling: Finma Overstepped Its Authority

The court’s ruling marks a rare victory for investors. Judges determined that Finma’s March 2023 order lacked a sufficient legal basis and that Credit Suisse was not insolvent at the time the bonds were written off. The court emphasized that the so-called “viability event,” which would have legally triggered a write-down, had not occurred because Credit Suisse still met its capital requirements.

Moreover, the ruling stated that Finma’s move represented a violation of property rights under Swiss law, as the agency acted without explicit statutory authority. This decision could lead to compensation claims and prompt lawmakers to clarify the limits of regulatory power in future banking crises.

Impact on Banks, Investors, and Market Stability

This verdict could have wide-ranging consequences for global bond markets, especially as banks depend on AT1 instruments to strengthen their balance sheets amid rising interest rates and tighter liquidity. Investors who once viewed these bonds as a relatively safe, high-yield investment may now reassess their risk exposure.

For regulators, the case is a reminder that transparency and legal consistency are essential in maintaining trust in the financial system. Banking experts warn that uncertainty around AT1 instruments could increase the cost of capital for lenders and complicate future crisis interventions.

UBS, which completed the takeover in 2023, declined to comment on the verdict, while Finma and the Swiss finance ministry said they are reviewing the decision. The ruling can still be appealed to Switzerland’s Federal Supreme Court, leaving the final outcome uncertain.

Closing Insight

The Credit Suisse case highlights a fundamental tension between financial stability and investor rights. While emergency measures can prevent a systemic collapse, they must remain legally sound to preserve confidence in the credit and capital markets. As regulators worldwide monitor the fallout, one lesson is clear: in future crises, swift action must be matched with clear rules and accountability.

Previous Post European Banking M&A Momentum Shifts Toward Germany and Poland

Next Post JPMorgan Takes $170M Charge-Off on Tricolor Ties