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The recent collapse of banks in the US such as Silicon Valley Bank and Signature Bank – and the forced acquisition by UBS of ailing Credit Suisse – has rocked the financial world. Although Asia has been less affected, the crisis has also prompted a spate of lawsuits and created a range of legal ramifications that could last for years. George W Russell reports

The first class-action suits have rolled in over the recent banking turmoil in North America and Europe, and law firms say they are preparing for what could be years of litigation over the collapse of Silicon Valley Bank (SVB) and Signature Bank in the US, and the enforced merger of Credit Suisse with UBS in Switzerland.

The potential legal actions are wide-ranging – covering securities regulation and international treaties as well as insurance regimes, and contractual and statutory issues. Banks are also likely to engage law firms to ensure their adherence to compliance and regulatory mandates.

One of the biggest triggers has been the enforced write-down of USD17 billion in Credit Suisse’s Additional Tier-1 (AT1) notes. An AT1 is a capital instrument designed to absorb losses if a bank goes into the red, collapses, or has to be rescued by the state. These bonds can be converted into equity or written down to zero.

Several legal suits have been filed on behalf of the AT1 bondholders, which law firms say have attracted enthusiasm from potential plaintiffs.

“The response from interested parties has been immense,” says Thomas Werlen, managing partner for Switzerland at Quinn Emanuel Urquhart & Sullivan in Zurich, which is representing a group of AT1 bondholders.

“Quinn Emanuel’s teams have been working around the clock to answer questions from investors and to organise the formation of a group of plaintiffs willing to take legal action against the write-down, from small investors to some of the largest institutional and fund investors,” says Werlen.

He says the firm is looking at several actions, including “challenging the legality of the 19 March order” by the Swiss Financial Market Supervisory Authority, known as Finma. That day, Switzerland’s Federal Council enacted the Emergency Ordinance on Additional Liquidity Assistance Loans and the Granting of Federal Default Guarantees for Liquidity Assistance Loans by the Swiss National Bank to Systemically Important Banks.

The ordinance authorised Finma to order Credit Suisse to write down the AT1 capital. Other firms have also filed suit against the AT1 decision and the moves spooked markets, as investors feared the same could happen to AT1 debt in other banks, which is globally worth more than USD275 billion, according to Bloomberg data. New York-based Bragar Eagle and Squire alleged in a suit that Credit Suisse executives made “materially false and misleading statements regarding the company’s business, operations and compliance policies”. The Rosen Law Firm in New York and two Los Angeles-based firms, Glancy Prongay & Murray and Schall Law, have also instituted Credit Suisse-related actions.

The US bank collapses have also triggered lawsuits. Robbins Geller Rudman & Dowd in San Diego is suing on behalf of Signature Bank investors, arguing the bank’s statements on “the stability of its business model, diversified deposit mix and high level of capital” were “false”.

But some investors have told Reuters they were reluctant to join a court case that could take years, and the owner of one Hong Kong-based distressed debt fund says he has been approached by US law firms but is not interested.

Pan Tsang, Robertsons

Many lawyers have been supportive of the Swiss merger. “The UBS-Credit Suisse deal was vital and imperative to rescue Credit Suisse, without which its collapse would likely trigger a domino effect and destabilise global banks,” says Pan Tsang, a partner at Robertsons in Hong Kong.

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