ONE of Credit Suisse Group’s biggest shareholder groups said the rushed merger of its bank with UBS Group over the weekend is an unprecedented breach of shareholder rights that may scare off institutional investors.

Ethos Foundation said on Monday (Mar 21) that it is weighing the possibility of legal action over the sale. The organisation acts as a proxy adviser for pension funds and other members holding between 3 per cent and 5 per cent of Credit Suisse stock and US$400 billion in assets.

Vincent Kaufmann, Ethos’ chief executive officer, said: “This situation is a big failure of corporate governance, and may send a poor image of Switzerland for international institutional investors in terms of good governance.”

Ethos said it is asking the Swiss authorities and UBS to explore a possible separation and listing of Credit Suisse’s Swiss unit following the merger, citing concerns about market competition and job cuts. The shareholder group, whose members insure 1.9 million people, is a frequent critic on pay, governance and other issues at companies in which it invests. 

Kaufmann joins legal commentators who stressed that the manner in which the sale was rushed through tarnished Switzerland’s reputation as a place where the rule of law is guaranteed for investors. Swiss Finance Minister Karin Keller-Sutter said the government-brokered deal it put together was necessary to prevent a complete implosion of Credit Suisse, which could have forced the government to take the politically unpopular step of bailing the bank out. 

In announcing the sale of Credit Suisse to its Zurich rival on Sunday evening, the government cited emergency laws that allow it to issue temporary ordinances to counter “threats of serious disruption to public order or internal or external security”. In this case, that included overriding merger laws on shareholder votes. 

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But Kaufmann took issue with the minister’s interpretation of the transaction as a commercial deal. 

“I don’t agree with Ms Keller-Sutter saying it’s not a public intervention but a commercial one,” he said. “If you change the law, and you remove shareholders’ voting power on such a key issue, then you clearly have a state intervention. It’s unprecedented and an expropriation of shareholder rights.”

Kaufmann said, however, that currently room for legal action is very limited.  “The Swiss are very protective of the management of companies,” he said, adding that it is very “difficult to go after former management for mismanagement”.

“We would need to prove that the bank’s management withheld some information from us, and that they didn’t act in the best interest of shareholders,” he added. BLOOMBERG