Credit Suisse details more failings from Greensill collapse

Reputational damage and economic failure from Greensill may have been averted if individual managers and staff had conducted themselves ‘more appropriately.’

Greensill, founded by Australian-born Lex Greensill, presented itself as a technology start-up that competed with banks to offer supply-chain finance to companies that had fallen below the radar. Picture: Hollie Adams/The Australian

Credit Suisse Group gave new details Monday on how it was caught out by the collapse of Greensill Capital in March 2021 and why it overlooked earlier red flags.

Credit Suisse said an internal review found that the reputational damage and economic failure from Greensill could have been averted if individual managers and employees had conducted themselves “more appropriately.”

It fired 10 people, and is clawing back $US43m ($A57.04m) in pay. The bank had already said it would restructure its asset management arm.

The Swiss bank has said it didn’t know until the last minute in February 2021 that Greensill’s business was at risk and insurance on debtors in the funds was expiring, precipitating Greensill’s bankruptcy. It ran $US10bn in investment funds with Greensill and so far has been unable to recover all of the funds for investors.

Efforts to recoup the fund investments took a blow Monday, when Greensill’s largest insurer, Tokio Marine Holdings, alleged that multiple insurance policies had been “fraudulently obtained” by Greensill.

A spokesperson for Greensill’s bankruptcy administrator declined to comment. A spokesperson for Mr Greensill didn’t immediately return a request for comment.

The bank’s update on Greensill was part of a response to questions from a Swiss foundation representing pension funds. As part of the bank’s annual meeting later this month, the foundation asked Credit Suisse to more fully disclose what went wrong.

Credit Suisse said one of its immediate actions after Greensill’s collapse was to commission an independent review by an accounting firm and a law firm. It has declined to publish the report, but released some findings in the response Monday.

Credit Suisse said Greensill contacted its asset management arm in March 2016 about starting a fund, and that the companies went on to run four funds together. Credit Suisse told investors in the funds that its asset management arm would play a passive role and that a third party service provider would select, vet and monitor borrowers.

That third party was Greensill, but the firm wasn’t mentioned by name, the bank said Monday, because it didn’t want to lock the funds into relying on a single source of assets.

Credit Suisse said Monday that it found problems in the funds in a review in mid-2020 into a side agreement the funds struck with SoftBank Group. At the time, the funds were seizing up in the coronavirus pandemic as investors withdrew their money. The agreement channelled a SoftBank investment in the funds, and promised that the money go only to Greensill companies.

SoftBank at the time was also an investor in Greensill and in some of the companies receiving financing from Greensill, raising concerns inside Credit Suisse about conflicts of interest. The Wall Street Journal previously reported about the arrangement.

Credit Suisse said a review by a law firm found the side agreement with SoftBank was unfair to other investors and the bank ended it. It said one of its executives at the time decided to keep operating the funds because investors hadn’t been harmed by the arrangement.

The problems with the SoftBank deal didn’t stop Credit Suisse when it later decided to lend $US140m to Greensill later that year. It also marketed a potential stock sale for the company.

Negative media reports on Greensil were also on Credit Suisse’s radar, it said. But it said Greensill gave satisfactory explanations, and that the media reports weren’t enough to be interpreted as a sign of serious financial difficulties.

The Journal reported in 2020 and early 2021 that Greensill’s business partners were scaling back dealings with the firm, that regulators were looking at its German bank and that it was struggling to raise fresh funds.

Founded by Australian-born Lex Greensill, Greensill presented itself as a technology start-up that competed with banks to offer supply-chain finance to companies that had fallen below the radar.

The start-up made supply-chain loans to companies then packaged them up into notes. Credit Suisse’s asset management unit sold the notes as safe investments guarded by insurance.

On Monday, Tokio Marine alleged Greensill fraudulently misrepresented matters material to its underwriting since at least September 2018. It said it has told counterparties the Greensill policies are void from inception, meaning conditions have been breached, and that it would defend against any claims against it related to those policies.

A spokesperson for Credit Suisse said “it is our firm position that the relevant insurance policies are valid and that the insurers’ claims are unfounded. We will take every step to preserve the rights of the Supply Chain Finance Funds and their investors and we will vigorously defend our position.”

Credit Suisse has disbursed nearly $US7bn to investors. As of February 28, the bank had filed 11 insurance claims across insurers tied to $US1.5bn in exposure, Credit Suisse said.

On Monday, Credit Suisse said litigation for potential recoveries could take around five years.

The Wall Street Journal