The Swiss bank's decision to enter into a standstill deal with Sanjeev Gupta in order to speed up the liquidation of its Greensill supply chain funds could turn out to be a risky move.

The whole Greenshill debacle started when «The Wall Street Journal» (behind paywall) named steel magnate Sanjeev Gupta in connection with potential problems with Credit Suisse’s asset management business at the end of February. Days later the bank shook the financial world by announcing that funds to the tune of around $10 billion had been blocked.

Since then Gupta has played a leading role in the scandal which has already put two banks out of business. This is particularly true for Credit Suisse as Gupta tries everything to keep his highly leverage conglomerate GFG Alliance afloat.

Applying Thumbscrews

For its part, the bank has to find $4.2 billion to pay back investors in the funds and is applying the thumbscrews to extract the money Gupta-owned companies owe the Greensill fund.

This meant the announcement that last weekend Credit Suisse and Gupta had come to a standstill agreement over the Liberty Primary Metals steelworks in Australia was something of a surprise. According to the bank, this unit of GFG-Alliance still owed the Greensill funds $1.2 billion, making it the largest outstanding debtor.

Softly-Softly Stance

Credit Suisse is now taking a more softly-softly approach after having previously threatened to liquidate the subsidiary. However, the goal of extracting the money still owed to the funds as quickly as possible probably remains the same, but this change of tactics might turn out to be risky for several reasons.

The U.K.’s Serious Fraud Office is investigating GFG Alliance for suspected fraud and money laundering in the wake of Greensill’s collapse. The SFO explicitly said in a press release that the group’s financing via Greensill was part of the probe.

Knocking On Swiss Door

Sources familiar with the process say it is obvious that in the course of the investigation GFG’s relationship with its banks will be looked into. This means that sooner or later the SFO is likely to come knocking on the Swiss bank's door.

Victim Vs Accomplice

Should the suspicion of fraud strengthen, the change of tactics on Liberty Primary Metals would put the bank in an even more difficult position because it would have become mixed up with suspected criminals to get its hands on the money owed to the funds.

Regardless of whether the SFO will treat the bank as a victim or accomplice in any fraud, it might uncover, any investigation is likely to belong, drawn-out, and burdensome. Credit Suisse declined to comment on either GFG and Gupta or the SFO inquiry.

Opaque Convoluted Web

There is also a second reason why the deal with Liberty Primary Metals is a gamble: GFG Alliance owes several creditors money, and it is difficult to work out how much the convoluted web of companies is still worth.

The Liberty Steelworks at Stocksbridge in northern England, which has been put up for sale to pay creditors, is a good example. The «BBC» said on its website the plant could turn out to be worthless. In addition, the only potential buyer, China-based Jingye Group, which already owns British Steel, might be ruled out by the government on national security grounds.

Other Swiss Links

Liberty’s Belgian arm Liège-Dudelange has put itself into temporary protection from creditors. The plants, which were taken over from ArcelorMittal in 2019, cannot be sold back to it under competition law, so another buyer would have to be found in the event of a liquidation. Liberty’s plant in Italy might not be able to operate in June because it is no longer being supplied with raw materials.

And Credit Suisse is not the only Swiss financial institution involved with Gupta: The Swiss unit of U.K.-based Barclays Bank granted the steel magnate a mortgage which was used to buy a six-story townhouse worth £42 million ($59 million) in the exclusive London area of Belgravia last August to serve as his family’s residence there.

Sparking Popular Rage

The property is registered to his wife, Nicola Gupta. Barclays in Switzerland declined to comment. However, in the U.K., where thousands of jobs at Liberty Steel are at risk, the purchase of the mansion has sparked outrage.

Zurich-based fund manager GAM is also likely to have mixed feelings about Gupta. Like Credit Suisse, GAM too had to close its own Greensill funds, which were reported to be financed partly by GFG Alliance.

GAM's Lengthy Drama

The «Financial Times» (behind paywall) reported that GAM had only been able to cut additional ties with Gupta at the end of 2020, which had continued despite the Greenshill-GFG connection which had forced it to suspend funds back in 2018. 

GAM is an indication of how long the destiny of others on the Swiss financial scene may be entwined with that of the steel magnate.

Writing by Samuel Gerber, additional reporting by Andrew Isbester and Katharina Bart