Credit Suisse “seriously breached its supervisory obligations” in its relationship with disgraced financier Lex Greensill and his companies, the Swiss financial regulator has ruled.
The Swiss Financial Market Supervisory Authority (Finma) said it had concluded its enforcement proceedings against the bank, Switzerland’s second-largest, following the collapse of Greensill Capital in March 2021.
Greensill, which lent money to companies by buying up their invoices up front, collapsed after credit insurers pulled cover, amid concerns about its huge exposure to the steel and raw materials magnate GFG Alliance. Sanjeev Gupta. Credit Suisse has been trying to recover US$10bn (£8.2bn) of funds trapped at Greensill, as well as reviewing its risk management and compliance.
The bank said it had recovered $7.4 billion so far, including cash already distributed to investors and cash remaining in funds. He added that he had a “clear strategic plan” that was being implemented by a new leadership team.
The Swiss regulator said: “Finma determines that Credit Suisse seriously breached its supervisory obligations… with regard to risk management and appropriate organizational structures.”
He noted that Credit Suisse had reviewed governance structures and strengthened control processes in approving and monitoring fund products. The regulator supports this, but ordered further action.
In future, the bank will need to regularly review at executive board level the most important business relationships (about 500), in particular for counterparty risks. In addition, the bank is required to record the responsibilities of its approximately 600 most senior employees in a liability document. They should be penalized by the bank “if they do not organize and manage their business area in such a way as to prevent misconduct as far as possible,” Finma said.
Finma has also opened four enforcement proceedings against former Credit Suisse executives. He refused to reveal the identity of these former employees. They face a possible ban from practicing the profession for up to five years.
Credit Suisse said it had laid off several managers and employees since March 2021 and moved risk oversight to a dedicated divisional risk management function.
Ulrich Körner, a former UBS executive who became chief executive of Credit Suisse last July after leading the asset management division since April 2021, welcomed the conclusion of Finma’s job.
“This marks an important step towards the final resolution of the problem of supply chain finance,” he said. “Finma’s review has reinforced many of the findings of the board-initiated independent review and underscores the importance of the actions we have taken in recent years to strengthen our risk and compliance culture. We also continue to focus on maximizing recovery for fund investors.”
In March 2021, Credit Suisse closed four funds on short notice that were related to Greensill companies. Greensill, a charismatic Australian banker, had persuaded Swiss bank and fellow Swiss investor GAM to invest billions of dollars in his supply chain finance business that promised to help businesses and the public sector by speeding up payment of bills and wages.
The risk of the funds was indicated as low in the client’s documentation. At the time of closing, clients had invested a total of $10 billion in the funds. Immediately after the closing, Finma began investigating whether Credit Suisse had breached Swiss supervisory law in its business relationship with Greensill.
Credit Suisse launched the first of four funds in supply chain finance in collaboration with Greensill in 2017. Greensill acted as a finance company, securitizing the claims and transferring the securities to the four Credit Suisse funds.
Finma’s investigation showed that Credit Suisse’s asset management firm “had little knowledge of and control over the specific claims.” In fact, it was not Credit Suisse as the asset manager of the funds that selected and reviewed them, but Greensill himself. Credit Suisse also left it to the latter to organize the insurance cover in its own name.
When Greensill told the bank that it was planning an IPO with Credit Suisse and needed a bridge loan, the risk manager of the lender responsible for the loan identified a number of risks in the company’s business model and recommended internally at the bank not grant the loan. However, a senior manager overturned this recommendation, Finma said. Credit Suisse also repeatedly relied on Greensill for its own statements.