A potential dispute over the wipeout of Credit Suisse Group AG’s riskiest bonds in Asia has drawn the attention of several funds experienced in financing lawsuits for retail investors.
(Bloomberg) — A potential dispute over the wipeout of Credit Suisse Group AG’s riskiest bonds in Asia has drawn the attention of several funds experienced in financing lawsuits for retail investors.
Burford Capital Ltd., which says it is the world’s biggest provider of commercial legal finance, is tracking the development as law firms rally aggrieved bondholders.
Earlier this week, a group of more than 60 holders in Asia filed a claim against Switzerland’s banking regulator over the decision to write down about 16 billion Swiss francs ($18.1 billion) of additional tier-one notes. The appeal from wealthy investors in the region came on top of mounting court challenges elsewhere.
“It’s a situation that we are monitoring closely,” Quentin Pak, a Singapore-based director at Burford Capital, which has an investment portfolio of about $5 billion, said in an interview.
Litigation Capital Management Ltd., with assets under management of A$537 million ($360 million), has been approached by sets of lawyers that are investigating whether there is a viable claim to bring on behalf of the retail bondholders, said Roger Milburn, a Singapore-based investment manager at the firm.
“The case is obviously high profile,” Milburn said. “When there are cases that are in the media where it looks like there might be some financial assistance needed for the claimants in order to pursue their claims, then naturally funders will be interested,” he said.
Both firms said it’s not clear if they will end up providing funding.
Getting financial support would be a significant hurdle to clear for retail holders of Credit Suisse’s debt as they look to appeal the Swiss regulator Finma’s decision to write down the bonds and seek compensation for losses. The move sent shock waves through Asia’s wealthy investors – from Singapore to Tokyo – who had been enticed by the prospect of high returns.
Finma Writedown
Finma declined to comment. It has previously published its position on the writedown, and has said that it was part of a takeover plan that was the least bad option after Finma and the government rejected a resolution of Credit Suisse or temporary nationalization.
A spokesperson for Switzerland’s Federal Department of Finance declined to comment, referring to Finma’s position published earlier.
“Investors who have suffered losses are free to take legal action, which is their right. Switzerland is a constitutional state,” the spokesperson said.
UBS Group AG and Credit Suisse declined to comment.
Read more: Credit Suisse AT1 Holders in Asia Add to Claims Over Wipeout (1)
Litigation funders are passive investors and cover fees for legal cases that fit their criteria, taking a cut when the party they back win the case and receive compensation. Such firms are “very choosy” on the cases and lawyers they fund, as they will lose their investment if the case is unsuccessful, Milburn said. Global numbers of the big funders suggest that between 4% and 7% of everything they look at each year actually gets funded, he said.
Burford Capital’s $72 million annual loss in 2021—the first in its history—underscored the risks litigation funders face as the Covid-19 pandemic slowed court dockets, delaying payoffs for investors.
A case’s legal merits, the certainty of damages, and the ability of defendants to pay up are among key considerations of legal finance providers, Pak said.
With Credit Suisse’s AT1 bonds, there’s a lot of public information including a clear set of terms and conditions, said Pak. The fact that bond prices are visible also helps quantify what the damages could be, while parties on the other side of potential claimants would include the Swiss government, where there is a high degree of confidence regarding their ability to pay out, he said.
LCM has a return of 154% on invested capital over 11.5 years, while Burford Capital’s cumulative ROIC was 88% at the end of 2022, according to the companies’ investor presentations.
Aggrieved Investors
Drew & Napier LLC, one of Singapore’s largest law firms, is representing the group of Asian holders who have filed a claim, according to partner Mahesh Rai, who works with Benedict Teo on the case. Drew & Napier is in talks to seek litigation funding for the case, Rai said.
At least 120 claims have been filed against the Swiss banking watchdog’s decision to wipe out the high-risk bonds. As of May 2, the claims represent around 1,300 individual bondholders, according to a spokesman for the Swiss Federal Administrative Court.
Even for wealthy holders, “it may also be that all of their wealth is tied up in these bonds and actually they don’t have the money available to pursue claims in order to recover the value that they have lost,” said Milburn.
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