In a ruling that could reshape investor trust in Switzerland’s banking sector, the Federal Administrative Court said the 2023 decision to erase Credit Suisse’s Additional Tier 1 (AT1) bonds during the UBS rescue had no legal basis. According to Reuters, the judges concluded that regulators violated property rights when they wiped out investors without the formal authority to do so.
The move reignites one of Europe’s biggest financial controversies, and delivers a rare rebuke to the powerful Swiss market watchdog FINMA, whose actions during the Credit Suisse collapse were widely criticized as opaque and politically driven.
The price of a rushed rescue
When UBS agreed to take over Credit Suisse in March 2023, FINMA ordered the complete write-off of $20 billion in AT1 bonds — a category of high-risk instruments designed to absorb losses in times of crisis. The twist? Shareholders walked away with $3 billion in UBS stock while bondholders got nothing.
That inversion of the usual capital hierarchy stunned global investors and triggered lawsuits in multiple jurisdictions. Now, Switzerland’s own courts have effectively sided with them.
The court ruled that “no clear legal framework” existed for FINMA’s decision, meaning the agency overstepped its authority. The fallout was immediate: UBS shares fell more than 3.5%, and legal experts warned the decision could lead to years of litigation.
A slow path to accountability
Roughly 3,000 investors filed complaints over the write-off. Zurich lawyer Jonas Hertner told Reuters the ruling shows that “under Swiss law, expropriation requires full compensation.” In other words: regulators can’t just erase private wealth for convenience, even in a crisis.
Still, compensation won’t come quickly. UBS and FINMA are expected to appeal, and analysts estimate the case could drag on for up to six years. Bondholders may also recover less than the full amount, as the market value of the securities had already plunged before the bank’s collapse.
The bigger question: can investors still trust Switzerland?
For decades, Switzerland prided itself on its stable legal framework and investor protection. That image took a beating when the Credit Suisse rescue flipped those principles upside down.
“This is about credibility,” said Peter Kunz, a law professor at the University of Bern. “You can’t tell global investors the rules don’t apply when it’s inconvenient.”
The verdict may help UBS lobby for lighter capital requirements, but it also shines an unflattering light on how quickly political urgency can override due process.
And in a global financial climate still jittery from crises past, this decision lands as both a legal milestone and a moral one: regulators may have the power to act fast, but not to rewrite the rulebook.