In March, Swiss authorities forced Credit Suisse to merge with larger rival UBS amid fears it could collapse, the BBC reported.
The move rendered worthless $17 billion of bonds held by investors.
Investors know that in dire circumstances this type of debt can be written down to zero, which is exactly what happened when UBS was told to take over Credit Suisse.
The Swiss financial regulator, Finma, has not commented directly on the lawsuit but in March said "the contractual conditions" for a write down were met, the BBC reported.
#Asian investors have joined a series of landmark international lawsuits being filed against the #Switzerland government over its handling of the takeover of troubled bank #CreditSuisse. pic.twitter.com/hWKJfuuA3l
— IANS (@ians_india) May 4, 2023
AT1 bonds, they said, can be wiped out in a so-called "Viability Event" -- in this case the extraordinary liquidity support granted by the Swiss government to Credit Suisse on March 19.
[bsa_pro_ad_space id=1]Nevertheless, dozens of individual bondholders in Singapore have joined what is believed to be thousands of aggrieved retail investors globally, who are challenging the Swiss authorities in court.
Lawyers say they have been inundated with enquiries.
The bondholders' main grievance is the manner in which the merger was conducted.
Central to their claim is who was given priority when the bank failed. The terms of the bonds show that bondholders are, if possible, supposed to be compensated first, after which come shareholders, the BBC reported.
But in practice, shareholders were allowed to exchange their Credit Suisse shares for UBS shares, albeit at a vastly reduced value.
It means, in effect, that those who had bought shares got something, while those who had bought bonds got nothing, the BBC reported.
The legal firm representing bondholders has called the Swiss regulator's decision "an unlawful action" that has had "devastating consequences on thousands of retail and small investors globally".