Credit Suisse bondholders may take legal action over £14bn wipe out in UBS takeover

A Swiss regulator's decision to prioritise shareholder value over certain bondholders in the forced takeover of Credit Suisse could result in legal action, a law firm has warned.

Quinn Emanuel Urquhart & Sullivan said a call for so-called AT1 bondholders would likely be held on Wednesday.

Holdings worth £14bn were wiped out under terms of the merger with UBS, imposed by the Swiss financial watchdog FINMA during emergency talks at the weekend.

There is anger as those with AT1 bonds, who would expect to see losses, will get nothing - while shareholders, who usually rank below bondholders in terms of who gets paid when a bank or company collapses, will receive £2.7bn.

Quinn Emanuel Urquhart & Sullivan told the Reuters news agency it was in discussions with a "significant percentage" of the Credit Suisse AT1 bondholders, with lawyers in Switzerland, the US and UK talking to a number of them about possible legal action.

The entities were not revealed by the law firm.

According to Morningstar data, funds managed by Lazard Freres Gestion, PIMCO and GAM Investments were among the most exposed as of the end of February to Credit Suisse AT1 debt in terms of portfolio weighting.

The terms of the AT1 bonds - a particular type of bank debt - state that in a restructuring, the financial watchdog is under no obligation to adhere to the traditional capital structure hierarchy.

FINMA's decision was cited as the reason for wider banks' bond prices coming under pressure as investors focused on the potential risks of holding them.

The situation is understood to have calmed after other European regulators, including the Bank of England, declared that they would continue to impose losses on shareholders before AT1 bondholders in any similar takeover scenario.

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Wider financial markets have also resumed a firmer footing after an initial sell-off on Monday morning though First Republic Bank, the regional US lender that secured $30bn in aid from major rivals last week, saw its battered shares halve in value.

Asian stock markets recorded a tentative recovery for values on Tuesday, while those in Europe followed in early trading.

The FTSE 100 was 1.2% up in early deals, in a broad-based rally, with miners leading the winners while bank and other financial stocks - hard hit over the past week - also seeing tentative gains.

Russ Mould, investment director at AJ Bell, said of the rally: "Beaten up by the chaos around the world, UK banks have been on sale for a few weeks and investors are now happy to go bargain hunting."

But he added: "The key question is whether this is the calm before the storm.

"The Federal Reserve's next interest rate decision tomorrow (Wednesday) still has the potential to kick up a fuss if the market thinks it is being too aggressive with rate rises.

"Investors' nerves are already frail, and it wouldn't take much to disturb the peace on the markets seen today."