Credit Suisse investors express concern over fallout from Greensill collapse


ZURICH (AP) — Credit Suisse has warned it may have to file a charge over its dealings with Greensill, as scrutiny mounts over its relationship with the British financial firm that collapsed into insolvency.

The Swiss bank has had to close around $10 billion of supply chain finance funds that bought Greensill-issued notes and marketed to clients. He is also trying to recover a $140 million loan he made to the company last year.

“Investors have been reassessing the risks to which the bank is exposed. In the worst case, the bank faces years of litigation.”

“While these issues are still at an early stage, we note that it is possible that Credit Suisse will incur a charge in respect of these matters,” it said on Tuesday.

ledge filed for bankruptcy last week after losing insurance coverage for his debt repackaging business.

Credit Suisse’s share price has fallen more than 10% since it announced that its supply chain funds were suspended on March 1. So far, it has paid investors about $3.1 billion in bailouts from the four funds, and said it would announce more cash distributions in the coming months.

The bank also said Tuesday that “contrary to certain reports,” its chief risk and compliance officer, Lara Warner, did not find out until February 22 that insurance related to Greensill could expire on March 1.

Greensill’s founder, Lex Greensill, said in a court filing last week that he kept top Credit Suisse officials, including Warner, informed of the funds’ insurance coverage in the “weeks” leading up to his insolvency filing on March 8.

The collapse has put fresh pressure on Chief Executive Thomas Gottstein, who has been trying to extricate Credit Suisse from a series of bad headlines, spanning an espionage scandal that ousted predecessor Tidjane Thiam to a $450 million writedown in a hedge fund investment.

The level of oversight and risk management in the bank’s asset management division is under scrutiny, particularly as Gottstein ordered a review of Greensill’s funds last year.

It said it was examining the structure and internal position of the asset management unit, which is part of Credit Suisse’s international wealth management division.

Gottstein said closed supply chain finance funds had received an additional $800 million since his suspension.

This brought the current funds to $1.25 billion on top of the amount already repaid to investors, with the funds continuing to receive cash “daily” as the underlying receivables and notes reached their term.

“I can’t promise a specific outcome,” he said at the Morgan Stanley Finance Conference, about efforts to return earnings to maximum value to investors. “But I can promise that we will make every effort to achieve the best possible result for the investors in our supply chain fund.”

Supply chain financing, or reverse factoring, is a method by which companies can obtain cash from banks and funds like Greensill to pay their suppliers without having to draw on their working capital.

Greensill had large exposure to a client, GFG Alliance, which is controlled by steel tycoon Sanjeev Gupta and has started to default on its debts, according to Greensill’s bankruptcy filing. Gupta said on Friday that GFG was in talks with Greensill’s managers about a standstill agreement to stop payments on its debt to Greensill for an agreed period.

Costs ‘impossible to estimate’

The saga overshadowed a strong start to the year for Credit Suisse, whose shares opened 1.8% as it said it had posted the highest level of pre-tax income for both January and February in a decade.

Andreas Venditti, an analyst at Bank Vontobel, said the bank was facing a loss of confidence among investors.

“Investors have been reassessing the risks to which the bank is exposed. In the worst case, the bank faces years of litigation,” he said.

“It is currently virtually impossible to estimate how high the direct costs of the case will be for Credit Suisse. Investors don’t like uncertainty.”

Three Credit Suisse investors, who declined to be identified because of the sensitivity of the matter, told Reuters they were concerned about the fallout.

An investor in the bank’s debt said the main financial risk was to Credit Suisse’s reputation, which he said was a key asset to the wealth management business.

A Credit Suisse shareholder said it should fully compensate investors in supply chain funds. A second said that, in addition to reputational risk, he was concerned about the effect on the bank’s future asset-raising and its credentials in the growing business of socially responsible investing.

Credit Suisse declined to comment beyond his remarks.

The bank has hired outside firms to help deal with regulators and insurers amid questions about the contracts underpinning Greensill’s security. It also recovered about $50 million from the $140 million bridging loan, it said.

Credit Suisse said its asset management division, which sold the funds to investors, was working with Greensill manager Grant Thornton and other parties to facilitate the recovery of the funds.

Japanese insurer Tokio Marine, which provided $4.6 billion of coverage for Greensill’s credit notes through an Australian unit, is investigating the validity of those policies. A person with knowledge of the matter has said that these were directly linked to Credit Suisse funds.

(Reporting by Brenna Hughes Neghaiwi and Oliver Hirt in Zurich, and Carolyn Cohn in London; Additional reporting by Simon Jessop in London and Tom Sims and Patricia Uhlig in Frankfurt; Editing by Michael Shields, Pravin Char, and Alexander Smith)

Related:

The biggest insurance news, delivered to your inbox every business day.

Get the trusted bulletin of the insurance industry

Previous Advice from Héloïse: the dangers of co-signing a loan
Next Nearly $22 billion state budget plan spends heavily on education, transportation