Credit Suisse Bans Trades in Some Venezuela Debt Amid Crisis
The Zurich-based bank will no longer trade two bonds issued by the Venezuela government.
(Bloomberg) -- Credit Suisse Group AG has barred its traders from buying or selling certain Venezuelan securities as the political and economic crisis in the South American country intensifies.
The Zurich-based bank will no longer trade two bonds issued by the government and the state oil company or any notes from a Venezuelan entity issued after June 1, according to an Aug. 7 company memo seen by Bloomberg. The lender is also restricting business with Venezuelan private individuals and companies. A Credit Suisse representative confirmed the memo’s contents.
The decision comes after the U.S. began imposing sanctions on some Venezuelan officials in response to the anti-democratic turn of President Nicolas Maduro, who installed a widely criticized assembly to rewrite the country’s constitution. It also marks a victory for Venezuela’s opposition leaders, who had been urging Wall Street banks not to throw Maduro a financial lifeline, and spearheaded a public shaming of Goldman Sachs Asset Management after it purchased some of the securities now prohibited by Credit Suisse.
“In light of the political climate and recent events in Venezuela, and actions taken by the current government, we want to ensure that Credit Suisse does not provide the means for anyone to violate the human rights of the Venezuelan people,” the memo says.
The prohibited securities are government debt due in 2036, as well as 6 percent coupon bonds issued by Petroleos de Venezuela, or PDVSA, due in 2022. While most brokers are already shunning the securities, Credit Suisse is the first known to formally ban them.
Under Pressure
Other banks are closely following the developments in Venezuela, where more than 100 people have died in protests against Maduro’s government in recent months. The Trump administration imposed restrictions against Maduro and about 30 high-level individuals, and is considering more severe measures. Broader economic sanctions would make it hard for foreign banks to do business with Venezuela without risking violations.
UBS Group AG, which follows U.S. sanctions policy, continues to trade Venezuelan government bonds but is scrutinizing transactions, said a person with knowledge of the matter who declined to be identified. Banco Bilbao Vizcaya Argentaria SA, which has a subsidiary in Venezuela, said in an emailed statement that it is maintaining its commitment to the country.
Banks are under pressure from regulators to know their customers and rein in shady dealings in their operations. Deutsche Bank AG was fined in the U.S. and U.K. earlier this year for failing to prevent the bank from being used in a Russian money-laundering scheme. Credit Suisse has come under scrutiny in Mozambique for helping to arrange state-backed loans that plunged that country’s economy into crisis.
’No Appetite’
Faced with reduced oil prices, the country -- which depends on crude sales for 95 percent of its export revenue -- has been plagued with shortages of everything from toilet paper to antibiotics and food. With the government running out of money to pay for imports and interest payments on foreign debt, it has turned, in part, to asset sales to raise whatever cash it can. In response, the opposition has sought to discourage potential buyers -- part of a broader initiative, outsiders say, to deepen the government’s cash crunch and expedite its collapse.
The investing arm of Goldman Sachs Group Inc. was the target of protests after it bought almost $3 billion of the PDVSA 2022 bonds at a steep discount in May from the nation’s central bank. The transaction prompted an internal review by its compliance and legal staff. Goldman Sachs has said it bought the bonds through a broker, and didn’t provide money directly to the government.
Venezuela’s 2036 notes, which weren’t part of the Goldman Sachs transaction, were also included in Credit Suisse’s restrictions because they were issued late last year to two government entities and have been recently shopped around in an effort to raise cash.
Credit Suisse has “no appetite for providing any funding to the Republic of Venezuela” directly or through third parties when it believes there’s intent to pass the funds on to the government, according to the memo.
Reputation Risk
The bank also has banned any business with counterparties controlled by the Venezuelan government, as well as those in the private sector, unless they’ve been approved by Credit Suisse’s reputational risk office or are identified as a permissible activity. That includes market-making of Venezuelan bonds and credit derivatives, as well as the use of Venezuelan assets as collateral for financial transactions with non-Venezuelan institutions.
Credit Suisse is distancing itself from the nation after having benefited from its role as financial adviser for a $2.8 billion bond swap PDVSA conducted in October. It’s unlikely another business opportunity of that kind will emerge as long as the borrowing costs for the company and Venezuela remain prohibitively high.
The move by the bank “shows that it is rapidly withdrawing its support and association from the Maduro regime,” said Russ Dallen, a managing partner at Caracas Capital.
--With assistance from Noris Soto and Rita Devlin Marier
To contact the reporters on this story: Jan-Henrik Förster in Zurich at jforster20@bloomberg.net, Katia Porzecanski in New York at kporzecansk1@bloomberg.net, Patrick Winters in Zurich at pwinters3@bloomberg.net.
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Michael J. Moore at mmoore55@bloomberg.net, Dale Crofts at dcrofts@bloomberg.net, Alan Mirabella, Katherine Burton