Credit Suisse is preparing for the aftermath of the debacle surrounding the closed Greensill funds. Lawsuits and the actions of the authorities are not the only concerns of the big bank.
The spin-off of asset management into an independent unit under the leadership of Ulrich Koerner, announced on Thursday, is far from the end of the Greensill debacle for Credit Suisse (CS). As can be seen from the bank's annual report for 2020, which was published the same day, the institution is likely to come under pressure from various sides.
For example, CS's decision in early March to wind down four of its CS Greensill funds, originally with more than $10 billion in assets, has already prompted regulatory investigations and action. More could follow, according to the report. Specifically mentioned is the Swiss regulator Finma, which is discussing with the big bank an increase in equity capital (Pillar 2 buffer) to cushion Greensill risks.
Threats of Legal Action
Fund investors have also threatened lawsuits against Switzerland's second-largest bank; CS warns in its annual report that it could become the target of claims for damages. As finews.com reported, a New York law firm specializing in class actions has already launched a call to that effect.
Meanwhile, CS must focus on the liquidation of the Greensill funds. According to its own reports, the big bank has already returned $3.1 billion to investors, mostly from excess cash. It will probably be more difficult to retrieve the debtor-in-possession financing to companies in which the funds specialized without incurring losses. These instruments typically have a maturity of one year.
Unpaid Bills
CS fund managers, it is now said, have been notified that not all financing will be repaid at the end of its term. The report does not say how large that portion is.
Furthermore, within the CS Group, there are other direct and indirect balances with the insolvent Australian-British financial boutique Greensill Capital as well as with products linked to the Greensill funds. The bank has already recovered $50 million of a $140 million bridge loan from Greensill Capital. However, CS warned that there could be costs here as well.
Customer Exodus Threat
This is apparently also true with regard to the entire Greensill «exposure» of the money house. As it was further stated on Thursday, it is likely that CS will suffer losses because of the matter. However, the bank is not yet able to measure the amount of losses, but believes that the case may have a material impact on the group's operating results.
The bank also warns that the consequences of the fund closures could damage the company's reputation. If this is the case, CS does not rule out the loss of client relationships and the withdrawal of funds.
