It could be said that the greatest regulator of behaviour is the credible threat of paying compensation
Director Tom Davey comments on the class action facing Credit Suisse in International Business Times
In light of the recent lawsuit filed against Credit Suisse, Director Tom Davey argues that class actions send a strong message to banks to clean up their act, so shareholders aren’t left carrying the can.
Tom’s comments were published in International Business Times, 17 April 2023, and can be found here.
“The distressed takeover of Credit Suisse by UBS seeks to close the door on concerns about systemic risks to the global markets, but in doing so opens an adjacent window to what litigation funders and enterprising lawyers find as an increasingly attractive (and lucrative) battleground for class actions.
“Credit Suisse admittedly finds “material weaknesses” in its reporting, and judging by the at least 6 reported class action lawsuits that have been initiated against the bank, the market agrees. In one of these class actions, bondholders are preparing a lawsuit over the write-down of Credit Suisse’s AT1 Bonds, as they now face only receiving a fraction of their value prior to the UBS takeover.
“These specific class actions send a strong message that companies who hold national and international importance must clean up their act. Soft touch jurisdictions must also react to preserve their reputations as a place to do business in order to uphold the attractiveness of investing in the global financial market
“The lack of effective regulation leaves bondholders, shareholders and other stakeholders carrying the can. It is then up to the courts to provide restitution to those interested parties who have no other option, apart from cutting their losses, than to take legal action.
“As we have seen before, e.g., RBS Rights litigation, a group or collective action may often be the most effective means to get a result rather than going it alone, where costs and risk become prohibitive.
“Ultimately, whilst regulators and central banks can and must react quickly to head off a worse crisis from unfolding, it is often the “law” that in quieter times pours over the carcass and decides what is right and wrong and who should be compensated. The spur for this is often not the regulators or criminal prosecution service but law firms acting in for civil action brought by disgruntled shareholders and others who have no other option. It could be said that the greatest regulator of behaviour is the credible threat of paying compensation.”