The write-down of the additional tier 1 instruments

The instruments and the order of 19 March 2023

Additional tier 1 instruments occupy a narrow space between debt and equity. They are perpetual subordinated bonds that count towards a bank’s going-concern capital because they absorb losses before the bank fails, either by conversion into shares or by a write-down, when a contractually defined trigger event occurs. Swiss regulation after 2012 encouraged the major banks to issue such contingent capital, and Credit Suisse had placed a series of instruments with institutional and private investors in Switzerland, Europe and Asia. FINMA listed thirteen publicly issued AT1 instruments of Credit Suisse Group AG, issued between 2013 and 2022 in US dollars, Swiss francs and Singapore dollars.¹ The popularity of these instruments in Asian private banking, where they were often sold to wealthy clients as high-yielding bank bonds, explains why the write-down produced a particularly strong reaction in Singapore and Hong Kong.

On 19 March 2023 FINMA ordered the complete write-down of Credit Suisse’s AT1 instruments. Its press release on the approval of the merger put the nominal value at about sixteen billion francs and stated that the write-down would increase core capital.² The Federal Administrative Court later put the amount at about 16.5 billion francs.³ The decisive feature of the measure was its effect on the order in which investors bore losses. The AT1 holders lost their entire investment, while the shareholders of Credit Suisse received UBS shares worth three billion francs. Tier 2 bonds, which rank ahead of AT1 instruments in the order of claims, were not written down.⁴

Contract or ordinance: the debate over the legal basis

FINMA defended its order on two grounds. The first was contractual. According to FINMA, the terms of the instruments provided that they would be completely written down in a “Viability Event”, in particular if extraordinary government support was granted. That condition had been met because Credit Suisse had received extraordinary liquidity assistance loans secured by a federal default guarantee on 19 March 2023. The second ground was regulatory. On the same day the Federal Council had amended the emergency ordinance to authorise FINMA “to order the borrower and the financial group to write down Additional Tier 1 capital”. FINMA added that Swiss AT1 instruments were designed to be written down or converted before the equity of a bank was completely used up.⁵

The new Article 5a of the ordinance empowered FINMA to order the write-down of additional tier 1 capital and to determine whether it applied to the borrowing bank or to the whole financial group. It covered in particular situations in which a merger or takeover was carried out to avert insolvency.⁶ Critics immediately pointed to the timing of the amendment, which was adopted on the evening of the rescue weekend and after the main terms of the transaction had been agreed. They also questioned whether a Federal Council ordinance issued under emergency powers could set aside the contractual ranking between shareholders and creditors. European authorities distanced themselves from the Swiss approach within a day. On 20 March 2023 the Single Resolution Board, the European Banking Authority and ECB Banking Supervision stated that under the European resolution framework common equity instruments were the first to absorb losses and that additional tier 1 instruments would be written down only after them. The Bank of England issued a statement to the same effect.⁷ These statements were aimed at reassuring investors in European and British banks. Implicitly they also marked a distance from the choice made in Bern.

The appellants’ arguments developed along several lines. They contended that shareholders should bear losses first and creditors only thereafter, particularly since the shareholders had received compensation in the takeover. They further argued that Credit Suisse had not been poorly capitalised at the time of the assistance, relying on the joint statement of FINMA and the SNB of 15 March 2023.⁸ The parliamentary investigation committee, whose mandate did not extend to deciding the legal question, described the legal basis and the timing of the write-down as matters worth examining critically, while acknowledging that the write-down had resolved a critical solvency issue.⁹ UBS, for its part, pointed to the finding of the same committee that Credit Suisse would have been insolvent without the rescue on 20 March 2023.¹⁰

The Federal Administrative Court

The appeals were brought before the Federal Administrative Court in St. Gallen, which by October 2025 had some 360 proceedings on its docket, brought by about 3,000 appellants.¹¹ The first procedural battle concerned admissibility. FINMA and UBS argued that creditors were barred from appealing against protective measures under the Banking Act and that the ordinance concerned an act of government excluded from judicial review. In a preliminary ruling in the lead case, the court rejected these objections. It held that the exclusion of review for acts concerning fundamental state interests had to be interpreted restrictively and did not cover an order directed against individual creditors. It further held that the statutory restriction of creditors’ appeals applied only where creditors were affected indirectly, whereas the AT1 holders had lost about 16.5 billion francs directly while UBS gained the equivalent in capital.¹² The ruling mattered beyond the case, because it confirmed that emergency law does not create a zone free of judicial review when it interferes with private rights.

The partial judgment on the merits was dated 1 October 2025 and published on 14 October 2025. The court annulled FINMA’s order of 19 March 2023 in the lead case. It found no contractual basis for the write-down, because no viability event had occurred. In its view Credit Suisse had been sufficiently capitalised and had met the regulatory capital requirements when the write-down was ordered. The court also found no sufficient statutory basis. Neither Article 26 of the Banking Act, nor Article 31 of the Financial Market Supervision Act, nor Article 5a of the emergency ordinance was sufficiently clear to justify such a serious interference with the guarantee of property. The court went further and held that Article 5a itself did not satisfy the constitutional requirements for emergency ordinances, including the rules on delegation and on the protection of property.¹³ The judgment did not yet say what should follow from the annulment. The question of whether the write-down could be reversed, or whether only damages remained, was reserved for a later decision.¹⁴

The judgment was received with a mixture of surprise and scepticism. In a commentary for the Oxford Business Law Blog, Edoardo D. Martino, Enrico C. Perotti and Tom Vos argued that the court had applied an unduly formal test. Contingent capital exists to address instability before insolvency becomes formal, they wrote, and emergency liquidity assistance against poor collateral constitutes a fiscal risk that should activate conversion. They also noted the paradox that FINMA was denied a power because of contractual wording that it had never required the bank to correct. In their view the judgment might reinforce supervisory forbearance by increasing the legal risk of decisive action.¹⁵ Other commentators welcomed the judgment as a reaffirmation of the rule of law and of the principle that emergency powers do not suspend the constitutional guarantee of property. The Swiss literature is divided as well. Thomas Jutzi of the University of Bern interprets the viability event as a regulatory trigger for loss absorption and reads the bond terms in the light of their supervisory purpose. On that basis he regards the write-down as permissible under banking law and the guarantee of property, while identifying a need for reform in transparency and in the coordination between authorities.¹⁶

Before the Federal Supreme Court

FINMA announced on 15 October 2025 that it would appeal to the Federal Supreme Court. It noted that the judgment concerned one of about 360 proceedings, that it did not yet address the consequences of the annulment and that it was not final. UBS filed its own appeal at the end of October 2025.¹⁷ On 22 October 2025 the Federal Administrative Court suspended all other AT1 proceedings until the Federal Supreme Court had decided the lead case. In December 2025 the Federal Supreme Court granted suspensive effect to the appeal of UBS, so that the instruments remained written down until the court decides on the merits. It cited legal certainty, noting that it was unclear how the judgment of the lower court might be interpreted in civil or arbitration proceedings in Switzerland or abroad.¹⁸ In March 2026 the court refused FINMA’s request to join the Federal Department of Finance to the proceedings. It found that the Confederation’s proximity to the case was insufficient, since its potential liability was not at issue in a case concerning the lawfulness of FINMA’s order. As of the end of July 2026 the appeals were still pending before the Federal Supreme Court, and no date for a judgment had been announced by September 2026.¹⁹

The stakes of the pending decision are considerable for UBS and for the Confederation. If the Federal Supreme Court confirms the annulment, the question of reversal will return to the Federal Administrative Court. A reversal would revive claims of about 16.5 billion francs against UBS as the legal successor of Credit Suisse, while an award of damages might be directed against the Confederation under the Government Liability Act. Peter V. Kunz, also of the University of Bern, who had long denied the existence of a legal basis for the write-down, predicted on the day the judgment was published that a final determination might take five to six years. He also suggested that UBS might turn against the Confederation if it had to repay sixteen billion francs, since the transaction would then be considerably less advantageous.²⁰ If the Federal Supreme Court overturns the judgment, the write-down will stand and the international claims discussed below will become the main avenue for the bondholders.

International claims

Foreign holders of AT1 instruments also sought redress outside Switzerland. In the United States a group of investors brought an action for about 370 million dollars against the Swiss Confederation and other parties before a federal district court in New York. The district court dismissed it, and in July 2026 a federal court of appeals upheld Switzerland’s sovereign immunity. It found that Switzerland had acted in its governmental capacity when it ordered the write-down and that American courts had no jurisdiction to adjudicate the claim.²¹

Investment treaty claims proved more durable. By January 2026 Switzerland had received at least nine notices of dispute under various investment treaties from AT1 holders. Japanese investors represented by Mori Hamada & Matsumoto relied on the Agreement on Free Trade and Economic Partnership between Switzerland and Japan of 2009, which gives investors access to arbitration under the ICSID Convention. The law firm emphasised that other treaties of Switzerland, such as the one with Singapore, did not offer the same guarantee, and a litigation funder undertook to bear the costs.²² The claim was filed in December 2025 on behalf of 184 Japanese investors who alleged unfair and arbitrary treatment and de facto expropriation. Registered as Hiroshi Osumi v. Swiss Confederation (ICSID Case No. ARB/26/1), the case is heard by a tribunal presided over by Marinn Carlson. A procedural order of 10 July 2026 established a strict confidentiality regime with closed hearings and unpublished pleadings, and the claimant’s memorial on the merits was due in October 2026.²³ For a country that has long promoted investment protection treaties for its own companies abroad, the experience of defending an expropriation claim arising from the management of its own financial centre is new.

Notes

1. FINMA, “FINMA provides information about the basis for writing down AT1 capital instruments”, press release of 23 March 2023, https://www.finma.ch/en/news/2023/03/20230323-mm-at1-kapitalinstrumente/. ↩
2. FINMA, press release of 19 March 2023 (cited above). ↩
3. Federal Administrative Court, “Unlawful write-off of AT1 capital instruments”, media release on judgment B-2334/2023, https://www.bvger.ch/en/newsroom/media-releases/unlawful-write-off-of-at1-capital-instruments-2385. ↩
4. FINMA, press release of 23 March 2023 (cited above). ↩
5. FINMA, press release of 23 March 2023 (cited above). ↩
6. Ordinance text in the version of 19 March 2023 (cited above), Article 5a. ↩
7. European Banking Authority, “SRB, EBA and ECB Banking Supervision statement on the announcement on 19 March 2023 by Swiss authorities”, 20 March 2023, https://www.eba.europa.eu/node/123: “common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier One be required to be written down.” On the Bank of England statement of the same day, which confirmed that AT1 instruments rank ahead of CET1 and behind Tier 2 in the UK hierarchy, see Arthur Cox, “Credit Suisse treatment of AT1s controversial and prompts ECB and Bank of England statements”, 20 March 2023, https://www.arthurcox.com/insights/credit-suisse-treatment-of-at1s-controversial-and-prompts-ecb-and-bank-of-england-statements/. ↩
8. Prager Dreifuss, “An Overview of the Appeals Against FINMA’s Decision to Write Off All of Credit Suisse’s AT1 Bonds” (cited above). The article records about 320 appeals by some 3,000 appellants as of August 2023. ↩
9. PUK report, summary (cited above), section on the write-down of AT1 capital. ↩
10. finews.ch, “Auch UBS kündigt Beschwerde gegen AT1-Urteil an”, 29 October 2025, https://www.finews.ch/news/banken/69915-ubs-at1-urteil-beschwerde-bundesgericht-finma-bundesverwaltungsgericht. UBS stated that it wished to protect “the credibility of AT1 instruments given their key role in bank resolution and liquidation”. ↩
11. Federal Administrative Court, media release on judgment B-2334/2023 (cited above). ↩
12. Federal Administrative Court, decision in case B-2334/2023 on standing, https://www.bvger.ch/media-releases/3eeb1c4b-6120-4804-9512-271477ebb52a/de/b-2334-2023_te.pdf. The court relied on Article 29a of the Federal Constitution, which guarantees access to a court, and on Article 6 paragraph 1 of the European Convention on Human Rights. ↩
13. Federal Administrative Court, media release on judgment B-2334/2023 (cited above). The court distinguished between liquidity assistance, which was permissible, and the write-down of capital instruments, which required a clear basis in statute. ↩
14. swissinfo.ch, “Bundesverwaltungsgericht hebt Abschreibung von CS-Anleihen auf”, 14 October 2025, https://www.swissinfo.ch/ger/bundesverwaltungsgericht-hebt-abschreibung-von-cs-anleihen-auf/90164445. ↩
15. Edoardo D. Martino, Enrico C. Perotti and Tom Vos, “The Swiss Job Undone: The Judicial Overturn of the Credit Suisse AT1 CoCos Write-Down”, Oxford Business Law Blog, 13 January 2026, https://blogs.law.ox.ac.uk/oblb/blog-post/2026/01/swiss-job-undone-judicial-overturn-credit-suisse-at1-cocos-write-down. ↩
16. Thomas Jutzi, “AT1-Abschreibungen zwischen Privatrecht und Aufsichtsrecht”, Aktuelle Juristische Praxis (AJP/PJA) 3/2026, p. 242 et seq., version on the website of the Institute for Commercial Law of the University of Bern, https://www.iwr.unibe.ch/unibe/portal/fak_rechtwis/e_dep_dwr/inst_iwr/content/e36453/e162340/e172868/e172869/files1793505/Jutzi_AJP_2026-3_242_ger.pdf. ↩
17. FINMA, “FINMA to appeal partial decision of the Federal Administrative Court concerning AT1”, 15 October 2025, https://www.finma.ch/en/news/2025/10/20251015-meldung-bvger-at1/; finews.ch, 29 October 2025 (cited above). ↩
18. Federal Administrative Court, “Suspension of AT1 cases”, media release of 22 October 2025, https://www.bvger.ch/en/newsroom/media-releases/suspension-of-at1-cases-2443; SRF, “AT1-Anleihen der Credit Suisse: Bundesgericht gewährt UBS aufschiebende Wirkung”, 10 December 2025, https://www.srf.ch/news/wirtschaft/aufschiebende-wirkung-at1-abschreibung-der-credit-suisse-anleihen-bleiben-wertlos. ↩
19. Nau.ch, “Keine Beteiligung des Bundes bei Finma-Beschwerde zu AT1-Anleihen”, 18 March 2026, https://www.nau.ch/news/schweiz/keine-beteiligung-des-bundes-bei-finma-beschwerde-zu-at1-anleihen-67107388; finews.com, “AT1 Lawsuits: US Appeals Court Upholds ‘Swiss Sovereign Immunity’”, 28 July 2026, https://www.finews.com/news/english-news/73079-us-berufungsgericht-wertloserklaerung-at1-anleihen-notuebernahme-der-cs-schweiz-als-staatsgewalt-zivilklage-abgewiesen-2. The status as at September 2026 is based on the absence of any reported judgment in the sources consulted. ↩
20. swissinfo.ch, “Rechtsprofessor: Nach AT1-Urteil droht der UBS Streit um Milliarden”, 14 October 2025, https://www.swissinfo.ch/ger/rechtsprofessor:-nach-at1-urteil-droht-der-ubs-streit-um-milliarden/90166916. ↩
21. finews.com, 28 July 2026 (cited above). ↩
22. International Institute for Sustainable Development, Investment Treaty News, “Switzerland faces ISDS claims over Credit Suisse AT1 bond write-off”, 19 January 2026, https://www.iisd.org/itn/2026/01/19/switzerland-faces-isds-claims-over-credit-suisse-at1-bond-write-off/; Mori Hamada & Matsumoto, “Notice of Trigger Letter Sent to Switzerland Regarding Credit Suisse AT1 Bonds”, https://www.morihamada.com/en/notices/107111. ↩
23. Andreas R. Ziegler, “Japanese investors file suit against Switzerland over Credit Suisse bonds”, International Law in Switzerland, 5 December 2025, https://intlawch.wordpress.com/2025/12/05/japanese-investors-file-suit-against-switzerland-over-credit-suisse-bonds/; bilaterals.org, “Credit Suisse AT1 arbitration moves behind closed doors as Switzerland’s paper trail stays hidden”, https://bilaterals.org/credit-suisse-at1-arbitration-moves-behind-closed-doors-as-switzerland-s-paper. Switzerland is represented by the State Secretariat for Economic Affairs together with LKK Arbitration. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.