The Swiss bank is pinning hopes of making good on investors’ Greensill losses on recouping insurance policies, but getting its hands on the money may not be that easy.
The Zurich-based bank is well over its own deadline for a third repayment from its shuttered supply chain funds. Behind the scenes, Credit Suisse is scrambling to pick apart a complex web of assets which has sparked two criminal investigations.
The Swiss bank’s hopes of returning money to more than 1,000 investors nursing fund losses hinges in large part on opaque insurance policies that it has little control over. While credit insurance through Japan’s Tokio Marine existed, the legal validity of the policies is called into question.
Stumbling Blocks To Claims
In March, Greensill lost $4.6 billion of insurance cover for new assets, and another $9 billion was set to lapse later this year, according to the firm tasked with its insolvency. It was the yanked insurance that caused Credit Suisse to suddenly pull the plug on $10.1 billion in Greensill funds four months ago.
Credit Suisse wants to enforce those insurance policies, as the «Financial Times» (behind paywall) reported two weeks ago. It faces a series of potential stumbling blocks in doing so.
The main problem with the insurance is that it isn’t Credit Suisse’s: The bank has few rights because it isn’t the policyholder, simply the so-called «loss payee». Tokio Marine, a Japanese insurer came to own the policies through its acquisition of Bond & Credit Company in 2019.
«Rogue» Underwriter?
This is where the confusion begins: A Sydney-based executive, Greg Brereton, underwrote much of the vital credit insurance to Greensill at BCC. After the acquisition, Tokio Marine reportedly fired Brereton from his job after finding he had underwritten as much as A$10 billion ($7.6 billion) for Greensill.
«We continue to assess the validity of cover extended to Greensill,» a spokesman for Tokio Marine said. The collapse of Greensill itself doesn’t crystalize any exposure for the insurer, he said. «Tokio Marine will continue to assess the validity of the cover extended to Greensill.»
Greensill As Linchpin
The statement makes clear that Greensill is the linchpin – not Credit Suisse, and not industrial investor Sanjeev Gupta, whom the bank has also pursued. Greensill was the entity insured – which is why any investigation into fraud on its part is key. A spokesman for Credit Suisse didn't comment.
U.K. fraud investigators are probing Gupta’s group of companies – an investigation inevitably involving Greensill. More importantly, the Bremen, Germany-based bank controlled by Greensill is also under investigation by its financial regulator, Bafin (where from top Swiss financial regulator Mark Branson takes over from August 1). On Monday, the U.K.'s accounting overseer said it is investigating Greensill's auditing firm.
Voided Insurance Claims?
The fraud investigations in particular will delay any payouts on claims – likely for years and, depending on the outcome, may render the policies moot. The issue is also being closely watched by Tokio Marine itself, which said it told Greensill and its broker, Marsh McLennan, mid-2020 that it had decided to sever ties.
Insurance and policy underwriting generally involves a much bigger element of trust than wider finance – a slope that will come into play in Credit Suisse and Greensill. Any failure of the policyholder – again Greensill, not Credit Suisse – renders the cover voidable.
This is mired in uncertainty. As commentators including Stephen Clapham have suggested, some of the largest positions in Credit Suisse’s supply chain funds more closely resemble loans loans than genuine trade finance transactions.
GAM Example
If GAM is anything to go by, Credit Suisse is in for a long period of uncertainty. At the Swiss asset manager, Lex Greensill had set up a U.K. private company – Laufer – in 2016. Greensill borrowed more than $500 million over the ensuing 18 months from GAM’s absolute-return funds, a source familiar with the matter said, and which the «Financial Times» (behind paywall) first reported in 2018.
Some of these funds were used by Greensill itself, or to conceal other loans it had drawn, the person said. Was this pattern repeated with funding by Credit Suisse? The British and German investigations should shed light on this.
Prolonging Pain
While Credit Suisse’s arms-length role as a loss payee means it will be paid if a claim is successful, it needs to nudge the policyholder to stake it. This is out of the bank’s hands and the purview of Grant Thornton.
The U.K. administrator said in an April filing it will pursue «processing of insurance claims for defaulting obligors.» Even if the bank can convince the liquidator to do so, several criminal investigations are likely to freeze the policy payouts.
For Credit Suisse, the open questions prolong a painful scandal: it sold most of the supply chain product to wealthy clientele in its private bank. Whether or not to offer these disgruntled clients recompense is emerging is a key issue for management, now overseen by Chairman Antonio Horta-Osorio.
