Credit Suisse Makes $1.7 Billion Greensill-Linked Fund Repayment

(Bloomberg) -- Credit Suisse Group AG said it’s making repayments to investors in its $10 billion Greensill supply-chain finance funds amounting to about half the money owed, after the scandal-hit funds were put into liquidation over valuation concerns.

The bank is making a further $1.7 billion disbursement to investors in the funds that were managed with former billionaire Lex Greensill’s firm, taking the overall amount repaid to about $4.8 billion, according to a statement on Tuesday. The Swiss lender is focusing on three segments of exposure in the funds which are causing uncertainty about valuation and said it plans to give a further update on future payments by the end of the month.

Credit Suisse marketed its popular supply-chain finance funds as among the safest investments it offered, because the loans they held were backed by invoices usually paid in a matter of weeks. But as the funds grew into a $10 billion strategy, they strayed from that pitch and much of the money was lent through Greensill Capital against expected future invoices, for sales that were merely predicted. Now, investors in the frozen funds are left facing the prospect of steep losses as the assets are liquidated. The bank has also warned it may also take a financial hit.

About $2.3 billion of notes are related to Sanjeev Gupta’s GFG Alliance, startup and Softbank portfolio company Katerra Inc., and Bluestone Resources Inc, a coal-mining company owned by the family of West Virginia Governor Jim Justice II. Of these, the exposure to Gupta’s metals empire is the largest at $1.2 billion.

Credit Suisse is seeking to push one of Gupta’s key commodities-trading units into insolvency, while Gupta and his GFG Alliance have been searching for new financing and simultaneously trying to persuade his existing lenders to hold off. Meanwhile, Bluestone Resources has sued Greensill Capital, saying it was defrauded in an $850 million financing deal.

The bank said it’s working with legal and restructuring experts to recover money through legal action, security enforcement and insurance claims, according to a presentation for fund investors on its website.

Credit Suisse is leaning toward letting clients take the hit of expected losses in the funds, a person familiar with the discussions said last week. The bank considers that the risks around Greensill were known and the funds were only marketed to investors able to assess such risks, the person said, declining to be identified discussing private matters. The magnitude of the final losses are still uncertain as the assets are liquidated.

The Greensill scandal was the worst of Chief Executive Officer Thomas Gottstein’s one-year tenure, before the bank was hit by the even bigger meltdown at hedge fund client Archegos Capital. After Greensill, Gottstein replaced asset management head Eric Varvel and removed the business from direct oversight of wealth management.

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