Credit Suisse Freezes $1 Billion of Funds as Scandal Widens

Credit Suisse Group AG froze four more funds that invested in the bank’s $10 billion supply chain finance strategy, adding to the widening scandal surrounding the bank’s exposure to Lex Greensill’s failed empire.

The additional funds have about $1.2 billion in assets, some of which they had put into the four Greensill-linked funds that Credit Suisse is now liquidating. The bank suspended them effective March 1, the same day it froze the supply chain finance strategy. It posted the decision in an investor update on its website dated March 9.

Credit Suisse Freezes $1 Billion of Funds as Scandal Widens

The largest of the additional funds are the $701 million Credit Suisse (Lux) Multi Strategy Bond Fund and the $303 million Credit Suisse (Lux) Multi Strategy Alternative Fund.

Their suspension compounds a crisis that’s forced Credit Suisse to seek outside help to deal with regulators’ queries and threatens to saddle the bank with losses from a loan that it made months before the collapse of Greensill’s empire. For Chief Executive Officer Thomas Gottstein, it’s arguably the worst reputational hit since taking over about a year ago in the wake of a damaging spying scandal.

Credit Suisse froze the supply chain finance strategy -- which invested in short-term financings arranged by Greensill -- after doubts emerged about the valuations of some of the assets, kicking off a chain of events that culminated in the collapse of Greensill Capital. The bank had held them up as a success story as recently as December. While the money pools have returned most of their cash, about two-thirds of investor money remains tied up.

The bank said it’s looking at various options for reopening the additional four funds that it froze along with the Greensill-linked strategy. The other two funds in that group are the Credit Suisse (Lux) Qatar Enhanced Short Duration Fund and Credit Suisse (Lux) Institutional Target Volatility Fund.

Credit Suisse Freezes $1 Billion of Funds as Scandal Widens

Credit Suisse has started an internal probe into the collapse of the supply chain finance strategy. It temporarily replaced three employees in its asset management unit tied to the funds. Michel Degen, head of asset management in Switzerland and EMEA, is being replaced on an interim basis by Filippo Rima, according to a person with knowledge of the matter. Luc Mathys, head of fixed income in the unit, and another manager who ran the funds were also suspended from their roles, the person said.

The Swiss lender is also reaching out to external firms to deal with regulators’ queries surrounding the collapse, people familiar with the matter said, asking for anonymity in discussing internal information.

Credit Suisse has begun paying back money from the supply chain finance funds to investors. The first payments totaling just over $3 billion were made to investors earlier this week, according to an investor Q&A on the bank’s website. Further proceeds will be distributed in several installments.

Many of the assets in the funds have insurance protection to make them more appealing for investors seeking alternatives to money markets, but a major insurer -- Japan’s Tokio Marine Holdings Inc. -- has since questioned the validity of the contracts with Greensill Capital.

Greensill’s stunning fall in a matter of days was set in motion last year when Tokio Marine’s Bond & Credit Co. unit decided not to renew policies covering billions of dollars of loans the supply chain finance firm made. Protection against default on some $4.6 billion in credit lapsed this month after a futile effort by Greensill to get an injunction to keep it going, court documents show.

Apart from the loss of insurance, Credit Suisse also pointed to separate valuation uncertainties for some of the funds’ holdings. A large portion of the assets had early on been tied to industrialist Sanjeev Gupta, Bloomberg has reported. Gupta’s GFG Alliance is now battling to negotiate a reprieve on its debt obligations to Greensill Capital.

©2021 Bloomberg L.P.

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