Credit Suisse Says Fund Defaults Expected, Investors May Sue

Credit Suisse Group AG said it’s expecting defaults in a $10 billion group of supply-chain funds that were run together with Greensill Capital, and investors have already begun threatening litigation.

“There remains considerable uncertainty regarding the valuation of a significant part of the remaining assets,” the bank said in its annual report on Thursday. “The portfolio manager has been informed that certain of the notes underlying the funds will not be repaid when they fall due.”

Investors have also threatened litigation and the bank may become embroiled in legal disputes as a result, Credit Suisse said.

The bank warned earlier this week that it may take a financial hit after it was forced to freeze $10 billion of supply-chain finance funds that it ran with Greensill and said it has so far recovered only about $50 million of a $140 million loan to the firm. The Swiss bank is also contending with how to deal with investors in the funds and how they will be repaid.

The funds, which the bank marketed as among the safest it offered, contained some assets tied to future sales of the borrowers, going beyond the typical supply-chain finance business of lending against actual invoices, Bloomberg reported this week.

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, according to people with knowledge of the matter. Now, investors in the frozen funds are left facing the potential of steep losses as the assets are liquidated.

Earlier this month Deminor, a company that funds investment-recovery litigation, said it had been approached by a number of investors facing losses of about 60% and that it was reviewing options including lawsuits.

Other developments from the bank’s annual report:

  • A number of regulatory investigations and actions have been initiated or are being considered, including by Swiss financial regulator Finma
  • Credit Suisse’s board of directors has initiated an investigation and the bank is working with outside help to look into the collapse of the funds, confirming a Bloomberg News report last week.
  • Bank said it is “reasonably possible” to expect a loss as a result of impact of Greensill’s collapse though it is too early to estimate the size
  • Credit Suisse may also suffer reputational harm associated with these matters that might cause client departures or loss of assets under management

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