Shareholders steam as Swissair collapses

Shareholders have seen their investment collapse Keystone Archive

Shares in the Swissair Group slumped when they resumed trading on Wednesday and within a few minutes the shares had lost more than 95 per cent of their value. Shareholders are steaming with anger and threatening the company with legal action.

At the close of business, the share price recovered a little to finish at SFr6.50, down 84.2 per cent on Friday.

The collapse of the Swissair Group’s share price surprised nobody, but that didn’t cushion the blow to investors.

As a symbol of national pride, Swissair has always provided a natural home for a deep pool of small investors who now feel betrayed by the company’s collapse. Now it appears their investment is worthless with even a liquidity dividend looking out of the question.

“Swissair has a whole lot of debt that needs to be paid off – something like SFr17 billion ($10.6 billion)”, explains Morten Heerholdt from Barclays stockbrokers, “There’ll be nothing left for shareholders.”

But disgruntled shareholders are preparing to fight back through the courts, even though they face a Herculean battle.

Targeting management, banks

“We are planning several actions,” says Hans Jacob Heitz, who heads a group of angry retail investors, “Our first step in the next few days is to lodge a criminal complaint against the Swissair Group’s management on one hand and, most probably, against representatives of UBS and Credit Suisse.”

Heitz, a lawyer, is already leading the group in a possible lawsuit against the former management board that embarked on a failed foreign expansion programme that is blamed for the current debacle.

Heitz now casts doubt on the legality of this week’s transaction which saw UBS and Credit Suisse buy Swissair’s 70 per cent stake in the regional subsidiary Crossair for what he considers the paltry sum of SFr260 million.

“The price paid by the banks for the Crossair stake is too low and we are convinced that this deal was probably illegal.”

He also puts forward the argument that there should have been a completely different approach to the crisis facing the Swissair Group.

“We are fighting for another solution. That the healthy firms in the group ought to continue their operations and that the unhealthy parts should immediately be declared bankrupt.”

Nothing to recoup?

Investors holding bonds in the aviation group are also expected to recoup little or nothing following the rescue operation.

The banks’ bailout package effectively pushes them to the front of the queue to get their investments back. Part of their lending would anyway have ranked alongside other secured creditors providing services for aircraft leasing and financing, but some would have ranked alongside that of bondholders.

Now, holders of Swissair’s SFr4.2 billion in bonds will be consigned to a large pool of unsecured lenders unlikely to gain anything back.

Most analysts give shareholders little chance of receiving satisfaction in the courts but it does at least provide an outlet for their anger.

Creditors may have more luck in the courts but it’s doubtful whether the Swissair pot will be big enough to satisfy everybody.

By Michael Hollingdale