Appaloosa Sues UBS Over $17 Billion Credit Suisse Bond Wipeout

Appaloosa Management LP, a U.S. hedge fund, has initiated legal action against UBS Group AG over the $17 billion wipeout of Credit Suisse Group AG's Additional Tier 1 (AT1) bonds following UBS's acquisition of Credit Suisse in 2023. The complaint, filed in federal court in New Jersey, alleges that Credit Suisse misled Appaloosa's clients, Palomino Master and Azteca Partners, about the bank's financial health and liquidity position at the time they purchased the high-risk AT1 bonds, which were later written to zero.

According to the lawsuit, Credit Suisse CEO Ulrich Koerner falsely claimed the bank's liquidity was "very strong" and "getting stronger," despite a deposit run that mirrored the collapse of Silicon Valley Bank. Appaloosa says two investors it advised suffered significant losses when their AT1 bonds were wiped out in March 2023, just 1.5 weeks after they began purchases. The complaint accuses Credit Suisse of violating securities laws and the New Jersey Racketeer Influenced and Corrupt Organisations Act, and is seeking unspecified damages.

UBS declined to comment on the lawsuit, and the plaintiffs' lawyer did not immediately respond to a request for comment. The case highlights the shock to investors caused by Switzerland's financial regulator FINMA's decision to seize Credit Suisse's AT1 bonds amid the bank's financial troubles, allowing UBS to buy the bank for $3 billion.

Why this matters: The lawsuit is one of many filed over the AT1 bond wipeout following the Credit Suisse acquisition, raising concerns about the stability of the financial system and the rights of investors in complex financial instruments. The case also underscores the potential legal and financial implications for banks involved in major acquisitions and restructurings.

The Appaloosa lawsuit is the latest in a series of legal battles stemming from the Credit Suisse acquisition and the treatment of AT1 bondholders. As the case progresses, it may provide further insight into the events leading up to the bond wipeout and the responsibilities of the banks involved. The outcome of this high-profile dispute could have significant ramifications for the financial industry and the way banks handle similar situations in the future.

Key Takeaways

• Appaloosa sues UBS over $17B wipeout of Credit Suisse AT1 bonds in 2023 acquisition.
• Appaloosa alleges Credit Suisse misled clients about bank's financial health before bond writedown.
• Lawsuit claims Credit Suisse CEO falsely claimed bank's liquidity was "very strong" before collapse.
• Case highlights shock to investors from Swiss regulator's decision to seize Credit Suisse AT1 bonds.
• Lawsuit is one of many filed over AT1 bond wipeout, with potential industry-wide implications.