When it was announced on Sunday that UBS would step up to the plate to salvage the remnants of Credit Suisse, and with it the fractured reputation of the Swiss banking sector, some extraordinary measures were taken to facilitate the deal.
The law was changed to allow the takeover without shareholder votes, even causing a source close to one of Credit Suisse's top three Middle Eastern shareholders, the Financial Times reported, to compare Switzerland to the autocracy of Saudi Arabia.
What shocked the debt market was $17bn-equivalent of additional tier one capital bonds being wiped out, even as Credit Suisse shareholders were given stock in UBS.
In the week that has followed, extensive litigation has been mounted by AT1 investors. As many sources have suggested, their challenge is more than likely to fail.
Finma, the Swiss regulator, issued a statement on Thursday standing by its decision and the likelihood is that the terms of the prospectus will hold and UBS will be spared both a headache and a big payout.
AT1 bondholders may kick up a storm and push for litigation. But, whether it was to be through bankruptcy proceedings or the extraordinary measures the Swiss state and Finma took, the Swiss AT1 resolution framework rules stated all along that investors could be stung, and they should have known that when they got involved.
Being hit worse than equity is a kick in the teeth, but AT1 holders were always going to end up on the chopping room floor in a situation like this. As one Swiss lawyer told GlobalCapital this week: “It is quite obvious some investors have not fully read the prospectus.”
For the government, rather than following the strict priority of capital tiers, it was politically crucial that Swiss equity investors — and Saudi National Bank, Credit Suisse's largest shareholder — were not expropriated.
Switzerland has built a reputation over centuries as a bastion of safe banking, and a public meltdown would have been disastrous.
Maintaining equity stability, in that shareholders will eventually transition to UBS's register, also maintains Credit Suisse’s structure and allows it to keep functioning during the takeover. Governance formalities such as shareholder votes can carry on as normal.
While the legal challenge is likely to proceed, and lawyers will fight on both sides with gusto, the writing was on the wall from the outset.
AT1 holders were never going to surface unscathed, and realistically they know that. They are hoping bringing things to the public eye might help them claw even a little money back at some point.
Trying is fair enough, but stop with the crocodile tears.