The Swiss bank's fund clients are being kept waiting for repayments from a failed supply chain product. Credit Suisse's capital buffer doesn't allow many concessions.
The first money flowed quickly: Credit Suisse managed to return $4.8 billion of funds invested in supply chain notes to clients. This represents nearly half of the $10.1 billion the funds held right before the Swiss bank pulled the plug three months ago.
When the Zurich-based bank made the second instalment of repayment ($1.1 billion), it said another would follow by month-end of early in June. As quarter-end nears, Credit Suisse has yet to do so: more than 1,000 fund clients – the bulk of whom are in its private bank – are still out of $5.2 billion.
Slew Of Legal Suits
The promise of a low-risk alternative to cash with interest enticed scores of wealthy clients, including reportedly Sheikh Hamad bin Jassim Al Thani, a prominent member of Qatar's ruling family. The emirate's sovereign wealth fund is the Swiss bank's biggest shareholder, with a 5.2 percent stake.
The web illustrates the dilemma Credit Suisse faces in sifting through the wreckage from its dealings with Australian financier Lex Greensill, founder of now-insolvent Greensill Capital. Its private banking arm – its raison d'être as a universal bank – is directly affected.
Clients clamoring unsuccessfully for their money back are joining a slew of class-action suits against the bank. Another $4.9 billion in losses three weeks after the Greensill funds were halted simply adds fuel to the fire.
Conflict-Rich And Complex
A spokeswoman for Credit Suisse didn't elaborate on why Credit Suisse's repayment timeline has stalled. «We continue to focus our efforts on recovering our investors’ money,» the bank said.
«Our priority remains to ensure a balance between a timely liquidation of the funds and maximizing value for the investors.» U.S. firm Grant Thornton is overseeing the liquidation of Greensill Capital. The auditor has in turn hired Herbert Smith Freehills to try and recoup credit insurance money.
Falling Out With Backers
Meanwhile, Credit Suisse wants a standstill agreement with a company controlled by Sanjeev Gupta, who relied heavily on Greensill to fund an European acquisition spree of industrial assets. According to Credit Suisse, GFG still owes the funds $1.2 billion. The U.K. Serious Fraud Office is investigating the matter for suspected fraud, fraudulent trading and money laundering.
At the same time, Credit Suisse is at an impasse with an earlier backer: technology conglomerate Softbank, and founder-CEO Masayoshi Son. Softbank had last November buoyed the funds with a financial injection – money which never arrived at Credit Suisse.
Concessions Off Table?
The process of liquidation and reimbursement slowing while the legal peril rises isn't unusual, but Credit Suisse was clearly determined to return more billions – even if it took years of wrangling in the courts. Now, even this is uncertain, after it emerged that so-called future receivables were also securitized in the funds.
As Credit Suisse clients demand reimbursement, this appears to be off the table at Credit Suisse. The bank offering compensation for losses raises the specter of moral hazard in the future, but playing hardball on claims will antagonize some clients.
Patching Over Losses?
The latter option is both at odds with Credit Suisse's ambitions for expanding its business the world's wealthy, and also ill-advised for its reputation. «Suisse» is meant to stand for quality, reliability, trustworthiness, and stability – but the bank's reluctance to make good on the losses likely has another reason altogether.
Is Credit Suisse too stretched for capital to shell out billions to patch over the losses with clients anyway? The bank won't comment. It hoovered up a quick 1.9 billion Swiss francs ($2.1 billion) shortly after Greensill, and then Archegos.
First-Quarter Splurge
Archegos, a family office-hedge fund, sparked a drop on Credit Suisse's common equity tier 1, or CET1, to 12.2 percent, below its 13 percent target. Under new chief Christian Meissner, its investment bank is also in the process of slashing risk-weighted assets which demand a considerable capital cushion.
Their number had surged following a first-quarter trading splurge amid ebullient markets, as finews.com reported. The capital rebuild is further encumbered by the fact that Credit Suisse is locked out of risk-taking as it conducts a post-mortem. The Swiss bank's conundrum has many facets – none of them appealing.
