Qatar’s QIA challenges UBS Credit Suisse takeover

May 18, 2023

man, sheikh — The QIA, run by chairman Sheikh Bandar bin Mohammed bin Saud al-Thani, is consulting with lawyers on whether to make a claim against the Swiss authorities

QIA owned 6.87% of Credit Suisse as of December 31 last year
Saudi National Bank and Olayan Group also owned stakes
About 1,000 bondholders have sued Swiss authorities

The Qatar Investment Authority (QIA) is said to be considering taking legal action against the Swiss financial authorities following the forced takeover of Credit Suisse by domestic rival UBS.

The Qatari fund increased its stake in Credit Suisse in late 2022 as part of the ailing lender’s ultimately failed attempts to bolster its finances following a string of disastrous managerial decisions.

The QIA is the world’s 10th-largest sovereign wealth fund with $475 billion of assets under management, according to the Sovereign Wealth Fund Institute.

The fund owned 6.87 percent of Credit Suisse as of December 31, a January filing to the US regulator shows. Previously, it held 5.03 percent, according to the bank’s website, having first invested in 2008 during the global financial crisis.

Saudi National Bank (SNB) also participated in Credit Suisse’s late 2022 capital-raising, paying 1.4 billion Swiss francs ($1.55 billion) for a 9.88 percent stake in December. Saudi Arabia’s Olayan Group also owns 4.93 percent.

However, in March, Swiss regulators instructed UBS to merge with domestic rival Credit Suisse. Credit Suisse shareholders would receive one UBS share for every 22.48 shares they held in the failing bank.

The deal valued Credit Suisse at 3 billion francs. That would make SNB’s stake worth 296 million francs and the QIA’s 206 million francs, resulting in significant losses on their equity investments.

The QIA is now consulting with lawyers on whether to make a claim against the Swiss authorities. It could go through international arbitration, Reuters reported, citing unidentified sources.

During crisis situations in the banking sector, governments and the legislative authorities can “either decide to suspend certain laws such as, for example, antitrust or competition laws for a period of time to make special rulings or even to announce changes to particular laws”, Michelle Brennan, S&P Global Ratings managing director for financial services methodologies, told a March 21 webinar.

The Credit Suisse collapse comes amid a series of changes at the QIA. This week, Qatar’s ruler issued a royal decree authorising the reorganisation of the fund.

As well as being a major shareholder in domestic corporations such as Qatar National Bank and telecom operator Ooredoo, it has a vast portfolio of foreign assets including stocks, bonds and real estate.

The QIA, via its wholly owned investment firm Qatar Holding, bought a 5.99 percent stake in Barclays in 2008 that helped save the British bank from requesting a state bailout.

The complicated deal, for which Qatar secured handsome fees, led to some Barclays officials to be tried and subsequently acquitted on fraud charges.

QIA Credit Suisse — The QIA, SNB and Saudi Arabia’s Olayan Group collectively owned 21.68% of Credit Suisse

Bondholder problem

In a controversial move, the regulator also announced in March that as part of the UBS takeover Credit Suisse’s additional tier-one (AT1) capital bonds, which had a notional value of 16 billion francs ($17.8 billion), would be written off to zero.

AT1 bonds are considered part of a bank’s capital and can be or written down or converted into equity should it run into difficulties. As such, the bonds offer high yields to reflect their risky nature.

The regulator’s decision to wipe out Credit Suisse’s AT1 bondholders while giving its shareholders 3 billion francs in UBS shares contravenes the usual hierarchy of claims when a business collapses.

Around 1,000 bond investors, representing about one-third of the AT1 bonds, have sued the Swiss regulator, Reuters reported.

Credit Suisse’s AT1 bond documentation clearly gives the regulator “a degree of discretion” to determine whether a so-called viability event has occurred, said S&P Global’s Brennan.

Such an event leads to the automatic, permanent writedown of the AT1 bonds to zero, she said.

“That differs from the documentation for many other AT1 instruments, where writedowns could be temporary with the potential for a write-back in the future,” Brennan added.

“Or a writedown could be to the extent required and where the concept of at least a partial writedown is available.”