Credit Suisse Group has warned that it will face a financial burden following the collapse of Greensill Capital this month, even though its chief executive has indicated that it does not plan to cover potential losses of 10 billion. dollars of funds linked to the insolvent financial company.
The Swiss lender’s asset management arm managed four funds that bought notes from Greensill, a supply chain finance specialist that gave short-term cash advances to businesses and turned them into investments. Credit Suisse has marketed the funds to pension funds, corporate treasurers and high net worth investors as a higher yielding alternative to money market funds.
Greensill’s operations have stalled after it was unable to renew credit insurance policies that Credit Suisse and other investors relied on to make investments safer. Credit Suisse stopped buying new investments from Greensill and froze the funds on March 1. Separately, the bank owes $140 million of a loan to Greensill, of which $50 million has been raised so far, Credit Suisse said on March 16.
Greensill filed for insolvency protection last week and regulators took over his German bank.
“This is of course first and foremost a problem for our investors in supply chain funds,” Thomas Gottstein, managing director of Credit Suisse, told investors at a conference on Tuesday. March 16, hours after the bank provided an update on the funds. and its financial performance. “But it is our fiduciary duty and responsibility to act in the best interest of our investors in these funds to recover the money and ensure equal and fair treatment.”
Asset managers generally have no obligation to cover investors’ losses, but lawyers working with investors in Credit Suisse funds say the risks may have been misrepresented. Credit Suisse fact sheets given to investors in recent months have rated the funds a 1 or 2 on a scale of 1 to 7, where 1 is the safest.
Gottstein said the funds returned $3.1 billion to investors last week and had about $1.3 billion more in cash to return. “I can’t promise a specific result. But I can promise that we will do our utmost to get the best possible outcome for our investors in supply chain funds,” he said.
Gottstein said the recoveries for investors will become clearer as investments in the underlying funds mature over the coming months. About three-quarters of loans held by Credit Suisse funds must be repaid within the next four months, according to fund documents.
Credit Suisse fired the fund managers and the head of its European asset management division last week “for the time being” and appointed new fund managers to oversee the liquidation of the funds.
Greensill specializes in supply chain finance, a type of short-term cash advance to businesses to extend the time they have to pay their bills. Credit Suisse funds bought notes from Greensill backed by corporate payments. Investment bank Credit Suisse separately lent money to Greensill, and its founder, Lex Greensill, was also a client of the bank.
The remainder of the $140 million Credit Suisse lent to Greensill is also secured by corporate debt issued by Greensill.
Gottstein said the bank had otherwise started 2021 well. He said pretax profit in January and February hit a decade high and his investment bank’s revenue rose by more than 50% compared to the previous year. Part of that came from special purpose acquisition company underwriting fees and other Spac-related revenue, Gottstein said.
The chief executive had sought to give 2021 a fresh start after a spy scandal and one-off accusations marred the bank’s financial results and reputation last year. Gottstein began a review of the asset management division that handled supply chain funds in September and on March 16 said the division could be moved from the international wealth management unit to a other part of the bank.
Before the funds’ problems came to light, Gottstein said earnings were likely to improve in the asset management division this year and the firm would help Credit Suisse meet its 2023 goal of increasing profits. wealth management revenue up 45% from 2020 levels.
Credit Suisse said it only recently discovered Greensill’s credit insurance problems. He said The Wall Street Journal that its chief risk and compliance officer, Lara Warner, received the first indication on February 22 that a tranche of insurance was expiring next week. A spokesperson said the formal confirmation of the expiry of the insurance was the main trigger for the freezing of funds.
—Duncan Mavin contributed to this article.
Write to Margot Patrick at [email protected]
This article was published by Dow Jones Newswires