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US asset manager AllianceBernstein is preparing to sue Switzerland for $225mn over the decision to wipe out $17bn of debt when the country’s government orchestrated the takeover of Credit Suisse by rival UBS last year.
The group, which manages about $800bn in assets, is set to be added next month as a plaintiff in a case brought by law firm Quinn Emanuel Urquhart & Sullivan on behalf of Credit Suisse bondholders, according to people familiar with the details.
AllianceBernstein will be the first large institutional investor to join the claim and is expected to seek about $225mn in damages from the Swiss state, taking the total value of the lawsuit to $375mn, the people said.
The case, which was first filed in the Southern District of New York in June, relates to the controversial writedown of Credit Suisse’s AT1 bonds when the scandal-hit lender was forced into a rescue merger with UBS in March last year.
Quinn Emanuel has argued that the deal was brokered by the Swiss government and was an unlawful encroachment on investors’ property rights.
AT1 bonds are a form of bank capital that converts into equity or is written down when a lender runs into trouble. However, the UBS Credit Suisse deal upended the traditional hierarchy among bank creditors by imposing losses on bondholders while allowing equity investors to recover $3.3bn.
The Swiss government, which is being represented by law firm Wachtell, Lipton, Rosen & Katz, filed a motion last week to dismiss the Quinn Emanuel complaint.
In court filings, Switzerland argued that as a foreign state, it was entitled to sovereign immunity from the lawsuit and that the dispute should be adjudicated in a Swiss court.
AllianceBernstein and Quinn Emanuel declined to comment. Lawyers representing the Swiss Confederation did not respond to a request for comment.
The Financial Times has previously reported that lawyers at Quinn Emanuel chose to sue in the US because they believe there is a greater chance of convincing a judge to waive the country’s sovereign immunity rights.
Legal cases against sovereign states for expropriation are rare because many countries have reciprocal investment treaties. However, Switzerland is not party to such treaties in many of the countries where the Credit Suisse AT1 investors reside, most notably the US.
Quinn Emanuel has a history of pursuing legal cases against nation states. The firm last year won a long-running UK legal battle with Argentina over sovereign bonds that the country issued as part of its post-financial crisis debt restructuring.
The Swiss government’s decision to introduce an emergency law that allowed Finma, the country’s financial regulator, to write down Credit Suisse’s AT1 bonds has generated more than $9bn of legal claims. Most have targeted Finma.
A Swiss parliamentary commission that has been investigating the causes of Credit Suisse’s collapse and the government’s role in the UBS takeover is expected to publish its findings by the end of the year.
