Credit Suisse has warned that it could face a charge stemming from the collapse of supply-chain finance group Greensill Capital, as it attempts to quantify the financial hit and contain the reputational damage from the deepening scandal.
The Swiss bank has been racing to assess the scale of its exposure to Greensill, a SoftBank-backed company, which claimed to be making finance fairer but collapsed into administration this month after its main insurer refused to renew a $4.6bn contract.
Its founder, former billionaire Lex Greensill, was a major private-banking client of Credit Suisse while his company also had relationships with the lender’s investment bank and asset management arms.
In a trading update on Tuesday, Credit Suisse said $50m of a $140m bridge loan it made to Greensill last year had been repaid. The remaining $90m is securitised against a basket of investment-grade receivables originated by the supply-chain finance group.
However, the bank warned that “while these issues are still at an early stage, we would note that it is possible that Credit Suisse will incur a charge in respect of these matters”.
Chief executive Thomas Gottstein said the priority now is to recover money that clients had put into Credit Suisse’s supply-chain finance funds, which offered exposure to loans made by Greensill and were marketed as safe, highly rated, fully-insured investments. These funds, which had a net asset value of $10bn, were suspended on March 1 — depriving Greensill of an important source of funding — and are now being wound down.
“I would be lying if I said supply chain wasn’t a distraction,” Gottstein said on Tuesday at a Morgan Stanley financials conference.
The chief executive reiterated that the scandal “is of course in the first instance foremost a problem for our supply chain fund investors” rather than the bank itself.
“I cannot promise a specific result — my lawyers wouldn’t allow me to do that — but I can promise I will undertake all efforts to reach the best possible outcome for our supply chain fund investors”, that will “ensure equal and fair treatment”, Gottstein added.
Since freezing the funds two weeks ago, Credit Suisse has received back an additional $800m of cash, which means the bank is in a position to return another $1.25bn to clients on top of the $3.1bn already distributed, Gottstein said.
The loan has highlighted flaws in Credit Suisse’s “integrated platform” strategy, which aims to boost earnings by cross-selling products from multiple divisions to ultra-wealthy entrepreneurs.
“The Greensill case has cost Credit Suisse around Sfr3bn francs in market capitalisation,” said Andreas Venditti, an analyst at Vontobel. Investors have “significant concerns and open questions related to the amount of potential losses” and “in a worst-case scenario the bank faces years of litigation.”
The Financial Times reported last week that Credit Suisse executives overruled internal risk managers who voiced concerns over the $140m loan to Greensill Capital.
The loan was eventually signed off by Lara Warner, Credit Suisse’s chief risk and compliance officer, in October. When it filed for administration last week, Greensill told a UK court there was “no conceivable way” it could repay the debt.
The bank also released a separate statement saying that Greensill only notified Warner on February 22 that the insurance would not be renewed — a week before the bank froze the funds.
The statement was intended to address a previous court filing from Lex Greensill, in which he said he kept Warner informed about problems with the funds’ insurance coverage in the “weeks” leading up to its insolvency application on March 8.
In response to the scandal, Gottstein said the board is reviewing whether asset management should continue to be run as a subdivision of its wealth management unit, a structural arrangement that he “always had some doubts about”.
Alongside the disclosure on Greensill, Credit Suisse said it had made the highest pre-tax profits in a decade in January and February. Revenue at the investment bank jumped 50 per cent, with a particular surge in Asian activity.
The bank’s shares rose 2 per cent in early trading on Tuesday, recovering some of the 9 per cent lost previously in March.
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2021-03-16 12:50:02Z
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