Swiss Court Strikes Down AT1 Bond Write-Off: A Landmark Decision for Bondholders

When Credit Suisse faced liquidity issues in March 2023, the Swiss government invoked its emergency powers in order to rescue it. As part of the rescue, which included the acquisition of Credit Suisse by UBS, the now largest Swiss Bank, the Swiss Financial Market Supervisory Authority (FINMA) ordered the complete write-off of all Additional Tier 1 capital instruments (AT 1 Bonds) – around CHF16.5 billion in bonds – wiping them out overnight.

The decision, based on Article 5a of the Federal Council’s Emergency Ordinance, granted FINMA extraordinary authority to impose this write-off. Acting under this newly enacted provision, FINMA issued a decree on 19 March 2023 directing Credit Suisse to immediately write off its entire AT1) bonds capital – amounting to approximately CHF16.5 billion – as part of the emergency measures taken during the bank’s acquisition by UBS.

The move has triggered numerous litigation and arbitration proceedings. Roughly 3,000 bondholders filed more than 360 complaints before the Swiss Federal Administrative Court (FAC), contesting the legality of the write-off. Furthermore, numerous bondholders commenced proceedings before the Courts of the Southern District of New York, while no fewer than five notices of dispute have been issued against Switzerland for breaches of bilateral investment treaties.

On 1 October 2025, the FAC issued a landmark partial decision in the lead (pilot) case, ruling in favour of the bondholders and declaring FINMA’s decree unlawful.

The FAC's Findings

A) Jurisdiction and Standing

FINMA argued that its decree was a political act of state security, immune from judicial review. The FAC rejected this outright, holding that the decree was an administrative decision affecting private property rights and therefore subject to judicial oversight. Since the measure directly impacted investors’ civil rights, Article 6 of the European Convention of Human Rights guaranteed their right to a fair hearing.

B) Economic Impact and Value of Bonds

FINMA and UBS contended that the AT 1 Bonds were worthless under any scenario – be it insolvency, nationalisation, or merger. The FAC disagreed. It noted that even in a hypothetical restructuring, AT1 Bonds could have retained value, since Swiss banking law requires shareholders to absorb losses before bondholders. Furthermore, a formal restructuring plan (Sanierungsplan) could have preserved creditor rights. The fact that UBS paid CHF3 billion in shares for Credit Suisse demonstrated that the bank still had value. The investors therefore suffered a real, causally linked loss from FINMA’s order.

C) Contractual Triggers: No Viability Event

The FAC examined the two contractual triggers for write-off and found that neither was satisfied:

• Type A (FINMA notification): This event required FINMA to notify Credit Suisse that a write-off of all Tier 1 and Tier 2 instruments was essential to prevent insolvency and that other capital measures were inadequate. The FAC found no such notification and no evidence of capital inadequacy.
• Type B (state support): This event applied only if government support aimed to restore insufficient capital. The FAC found that the state’s assistance was provided solely with a view to maintaining liquidity, not to fix capital shortfalls. Credit Suisse itself informed FINMA that contractual requirements for a write-off were not met.

The FAC also rejected arguments that the CHF9 billion loss-protection guarantee amounted to “state aid” to Credit Suisse. The guarantee benefited UBS, not Credit Suisse, and therefore could not trigger a viability event.

D) Lack of Statutory Basis

The FAC held that Swiss banking law related to protective measures only allows provisional supervisory measures and does not authorize the permanent extinguishment of private creditor claims. Given the gravity of the interference with property rights (Article 26 Swiss Constitution), a clear and specific legal basis was required-but none existed.

In addition, the FAC held that the new emergency clause, created days before the write-off, was too vague. It failed to specify when, which instruments, or how much capital could be written down, and it was not covered by the constitutional framework for emergency powers. The FAC declared the provision unconstitutional and inapplicable.

Result and Broader Effect

The FAC annulled FINMA’s 19 March 2023 decree in this lead case. While it has not ordered compensation, it confirmed that bondholders’ property rights were unlawfully infringed.

Because this case serves as the lead precedent, the FAC ordered that all similar pending AT1 complaints be suspended until the decision becomes final – either when the 30-day appeal period expires or, if appealed, when the Swiss Federal Supreme Court delivers its judgment. FINMA has already announced its intention to appeal. However, this does not suspend international arbitration claims under bilateral investment treaties before investment tribunals that are independent, apply international law, and make their own determinations.

Although this ruling operates under Swiss domestic law, its implications extend beyond Switzerland. The decision establishes that FINMA acted without legal authority, that the emergency powers were unconstitutional, and that bondholders’ property rights were violated. If this decision is not repealed on appeal, it is likely to support investors' claims before arbitral tribunals. Indeed, the FAC's findings will give credence to the argument that FINMA's actions (likely attributable to Switzerland) were not pursued for a public purpose, they disproportionately affected investors' rights, potentially lacked legitimacy and transparency and were against Swiss law. The above can form the basis of common claims under numerous bilateral investment treaties, such as expropriation, fair and equitable treatment and full protection and security.

DLA Piper can advise AT1 Bondholders on their rights and explore potential legal avenues for claims against Switzerland.