Shareholders frustrated as Swissair leaves SMI

Shareholders have been left with a worthless investment Keystone Archive

The Swiss Stock Exchange pulled Swissair shares from all indices, including the blue-chip Swiss Market Index, on Friday. Shareholders were left with a worthless investment after Swissair Group equity plunged 84 per cent on Wednesday to close at SFr6.50.

Trading of Swissair Group shares had been suspended for two days and after resuming on Wednesday morning, the share price fell 97 per cent to SFr1.40 within a few minutes. Last Friday, the share price closed at SFr41.05.

As recently as January, the share price stood at SFr262.

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. 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 doubts 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?

Most analysts however say the banks’ offer was the only deal on the table and that the Swissair Group had little choice but to accept. They say Swissair’s crippling debt may have wiped out the entire group.

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