Credit Suisse faces growing pressure from prized clients to compensate them for losses following the collapse of supply-chain finance funds linked to Greensill Capital.
The decision whether to do so is one of the first big dilemmas confronting new chair António Horta-Osório in his clean up of the bank, which faces the threat of several class action lawsuits from angry investors.
More than 1,000 Credit Suisse customers invested in the $10bn suite of funds, having been told by the bank’s advisers and marketing material that they were low-risk products, fully insured against losses.
However, the Swiss lender in March suspended the funds, which packaged up invoices owed by Greensill’s customers into investment products. The bank’s clients could lose up to $3bn after several of the companies whose debt the funds invested in said they were unable or unwilling to repay.
The UK’s Serious Fraud Office on Friday opened an investigation into Sanjeev Gupta’s metals empire, which borrowed $1.2bn through the Credit Suisse funds tied to Greensill. Last month the Financial Times revealed a series of suspect invoices linked to Gupta’s businesses.
Those invested in the funds include a former Qatari prime minister, hundreds of Credit Suisse’s ultra-wealthy European and Asian clients as well as pension funds and listed companies.
The inclusion in the funds of securities linked to yet to be issued invoices contravene the funds’ rules and marketing material, investors told the FT.
However, the bank’s lawyers are confident that the wording in the fund documents allude to the potential for investing in non-standard receivables, according to people briefed on internal discussions.
“It still irritates me that they won’t come clean,” and acknowledge they should compensate clients, said a wealthy individual who was personally invested in the funds and also runs a company that is a major counterparty to Credit Suisse. “The facts are pretty clear, no future invoices.”
He added that he hoped Horta-Osório would decide to compensate clients, in a replay of his decision when chief executive at Lloyds Banking Group to reimburse customers wrongly sold payment protection insurance.
“Of course it is affecting my relationship with the bank,” the investor told the FT. “Credit Suisse’s client advisers are telling me that ‘it is not my fault’, they agree top management should be acting differently to try to keep the relationship going, but it has been irreparably damaged.”
Sheikh Hamad bin Jassim Al Thani, the former prime minister of Qatar, invested $200m in the Credit Suisse funds, according to Bloomberg. Sheikh Hamad was head of the Qatar Investment Authority when the sovereign wealth fund bailed out Credit Suisse during the financial crisis, and the Gulf state is home to some of the bank’s lucrative clients. A representative for Sheikh Hamad could not be reached for comment.
Credit Suisse has refused to confirm whether participants in the funds will bear any losses, but has so far taken the view that they were professional investors who were aware of any risks.
Chief executive Thomas Gottstein said in March that the scandal “is of course in the first instance foremost a problem for our supply chain fund investors” rather than the bank itself.
The debacle has also ensnared companies in which Credit Suisse is a significant investor.
Swiss diagnostics company Quotient, which makes coronavirus testing kits, invested $110m in the supply-chain funds, but said in a regulatory filing that “any such losses should be borne by Credit Suisse and not by the company or other fund investors”. Credit Suisse Asset Management is a top five shareholder in Quotient, holding a 6 per cent stake.
Nam Tai Property, a US-listed Chinese company that invested $150m in the funds shortly after raising $170m from an emergency private placement last October, said it has sent a demand to Credit Suisse and filed complaints to the Securities & Futures Commission of Hong Kong and Hong Kong Monetary Authority.
Senior executives are wary of compensating clients over fears it would weaken the bank’s hands in insolvency and potential legal proceedings against Greensill, according to people familiar with the matter.
They are also concerned that Finma, the Swiss financial regulator, will regard the decision to reimburse professional investors as a precedent and force the bank to hold more capital as a result.
The pressure comes as several class action lawsuits bringing together scores of ultra-rich investors in the funds are gathering pace in London and Zurich, including ones being prepared by Boies Schiller Flexner and Quinn Emanuel — two law firms previously involved in legal proceedings against the bank.
Credit Suisse declined to comment.