Credit Suisse identifies $US2.3bn at risk in Greensill funds

Disclosure increases clarity over the scale of potential losses in the supply-chain finance funds.

The offices of collapsed finance firm Greensill near Warrington. Picture: AFP

Credit Suisse Group flagged around $US2.3 billion in problematic loans in its Greensill Capital funds, giving investors in the funds a more concrete sense of the size of their potential losses from the U.K. firm’s demise.

The Swiss bank is liquidating $US10 billion in a group of funds it ran with Greensill. In a Tuesday update, Credit Suisse said so far it has gotten $5.4 billion back for investors.

The bank said three borrowers are “driving the valuation uncertainty” in the remainder of the four funds’ investments. The three borrowers are metals magnate Sanjeev Gupta’s GFG Alliance; West Virginia Gov. Jim Justice’s coal company, Bluestone Resources Inc.; and SoftBank Group Corp.-backed construction startup Katerra.

GFG companies owe the funds $US1.2 billion, while Bluestone owes $US690 million. Katerra owes $US440 million.

The bank is working to recover the amounts it identified, but it isn’t yet clear how much it will eventually get back.

A spokesperson for Grant Thornton, the administrator in Greensill’s U.K. insolvency, declined to comment.

Spokespeople for Bluestone Resources and SoftBank didn’t immediately respond to requests for comment.

The problems at the Greensill funds began a month of crisis for Credit Suisse. It removed staff from the funds, named a new head of asset management and formed a crisis team to investigate what went wrong.

Then, later in March, its investment bank lost $US4.7 billion from big, concentrated stock positions it financed for hedge fund Archegos Capital Management. Several top executives have left the bank and internal and external crisis teams are now studying the events around Greensill and Archegos, as well as Credit Suisse’s broader risk culture.

Greensill’s demise last month left GFG, Greensill’s biggest borrower, scrambling to survive. Greensill lent GFG billions of dollars to buy steel assets across the world. Greensill used its German bank and the Credit Suisse funds to finance the GFG loans.

In recent weeks, Credit Suisse has taken legal action to liquidate some GFG assets for repayment. On Tuesday, it said it was working with legal and restructuring experts on strategies to pursue each of the three flagged borrowers.

A GFG spokesman didn’t immediately respond to a request for comment. A GFG spokesman pointed to a previous statement that said the company was in discussions with Greensill’s bankruptcy administrator to negotiate a solution, and that it would defend any legal action on the grounds that it has a three-year committee facility with Greensill.

Greensill specialized in an area known as supply-chain finance, a form of cash advance that lets companies stretch out the time to pay bills. Greensill packaged those cash advances into bondlike securities. Credit Suisse’s funds were the main buyer of those securities, giving Greensill firepower to expand its business.

Credit Suisse’s fund liquidation process involves collecting money from the borrowers as the loans -- many of them short-term -- mature, and then returning the cash to investors. After a fresh installment, the total returned so far will be $US4.8 billion, Credit Suisse said Tuesday.

Bluestone sued Greensill in New York federal court in March, alleging it perpetrated a fraud on Bluestone under the guise of giving it long-term financing.

At the time, Greensill declined to comment on the Bluestone lawsuit. In December, Greensill forgave loans from Katerra in exchange for a stake in the company, The Wall Street Journal reported, citing Katerra’s chief executive. The Journal reported last month that SoftBank had put $US400 million into Greensill at the end of last year to make Credit Suisse investors whole. That money hasn’t reached the bank, according to people familiar with the matter.

Katerra was one of several companies backed by SoftBank’s Vision Fund that Greensill lent to after receiving its own $US1.5 billion investment from the Vision Fund in 2019. Credit Suisse has said previously that losses from Greensill’s collapse could be material for itself and fund investors.

The Wall Street Journal