The Swiss financial market regulator Finma concluded Greensill-related enforcement proceedings against Credit Suisse.

The Swiss Financial Market Supervisory Authority (Finma) announced Tuesday that it concluded its enforcement proceedings against Credit Suisse in connection with its business relationship with financier Lex Greensill and his companies.

In March 2021, Credit Suisse closed four funds related to companies of Greensill at which point clients had invested a total of around ten billion dollars. Immediately after the closure of the funds in March 2021, Finma took various risk-reducing measures and opened enforcement proceedings. The focus was on the question of whether the Credit Suisse Group had violated Swiss supervisory law in its business relationship with Greensill.

Creditworthiness Was Doubtful

At issue was that the risk character of the funds changed decisively, Finma said. In some instances, Greensill transferred future claims to funds that had not yet arisen. By selling future claims to the Credit Suisse funds, Greensill financed some companies whose creditworthiness was doubtful.

Finma said its investigation found that Credit Suisse did not initially realize the consequences of this change. In addition, Credit Suisse had no knowledge or control over how many claims were actually contractually owed. In this context, it relied on the insurance coverage organized by Greensill.

Welcome News for CEO Ulrich Koerner

«We welcome the conclusion of Finma’s work. This marks an important step towards the final resolution of the SCFF issue. Finma’s review has reinforced many of the findings of the Board-initiated independent review and underlines the importance of the actions we have taken in recent years to strengthen our Risk and Compliance culture. We also continue to focus on maximizing recovery for fund investors», said Credit Suisse CEO Ulrich Koerner in a statement following the announcement by Finma.

Since the closure of the funds in March 2021, Credit Suisse said it took action to address numerous issues highlighted by Finma and that it is supportive of the measures the bank has taken to strengthen governance and control. Earlier this month, Credit Suisse said $256 million from the Credit Suisse Nova (Lux) Supply Chain Finance Investment Grade Fund will now be returned to investors and closed another page in the Greensill debacle. 

Proceedings Against Managers

The regulator opened four enforcement proceedings against former Credit Suisse managers. The regulator does not reveal names. Ex-CEO Thomas Gottstein was responsible at the time of the fund closures. According to research by finews.asia, however, he is not the focus of any proceedings.

Eric Varvel was at the time global head of the fund business, and Philipp Wehle was the head of International Asset Management (IWM), to which the Credit Suisse fund business was subordinate. Michel Degen, who had built up the partnership with Greensill as head of Switzerland and Europe for the fund arm, had already been released in 2021.

No Profit Confiscation

Credit Suisse went on to say that it is addressing all of the requirements outlined by Finma through organizational remedies which are already underway. Finma has not issued any order for the confiscation of profits connected to the proceedings while implementing additional measures is «not expected to result in significant costs for Credit Suisse,» according to the bank.

The Swiss bank posted a net loss attributable to shareholders of 7.293 billion Swiss francs ($7.921 billion) in 2022, from a 1.65 billion franc loss the previous year, according to annual results released earlier this month. 

Serious Violations

Even more, at the end of 2020, Greensill, for its part, announced the bank was planning an IPO with Credit Suisse. Before that, Greensill needed a bridge loan. The bank's risk manager responsible for the loan identified a number of risks in Greensill's business model, as the Finma proceedings have now established. Finma recommended internally at the bank that the loan not be granted. A senior management member overruled this recommendation.

Overall, Finma concluded in its proceedings that the banking group had for years seriously violated its supervisory duty to adequately record, limit and monitor risks in the context of its business relationship with Greensill. The supervisory authority also found serious deficiencies in the bank's operational organization during the period under investigation. Furthermore, the bank did not sufficiently fulfill its supervisory duties as an asset manager.

As a result, Finma finds a serious violation of Swiss supervisory law.