by Credit Suisse has “seriously breached its supervisory responsibilities” in its dealings with disgraced financier Lex Greensill and his companies, the Swiss financial watchdog has ruled.
The Swiss Financial Market Authority (Finma) has announced that it has completed foreclosure proceedings against the bank, the second largest in Switzerland, following the collapse of Greensill Capital in March 2021.
Greensill, which lent money to companies by buying their invoices in advance, collapsed after credit insurers withdrew coverage amid concerns about its massive exposure to steel and commodities magnate Sanjeev Gupta GFG Alliance. Credit Suisse is trying to recover $10bn (£8.2bn) of funds trapped in Greensill and is also reviewing risk management and compliance.
The bank said it had recovered $7.4 billion so far, including cash already transferred to investors and cash remaining in funds. He added that he had a “clear strategic plan” that was being implemented by the new leadership team.
The Swiss regulator said: “Finma finds that Credit Suisse has seriously breached its supervisory responsibilities … with regard to risk management and relevant organizational structures.”
Credit Suisse was noted to have reviewed its governance structures and strengthened its control processes for the approval and monitoring of fund products. The regulator supports this but has ordered further action.
In the future, the bank will have to carry out periodic reviews at the board level of the most important business relationships – about 500 – in particular in terms of counterparty risk. In addition, the bank is required to record the responsibilities of approximately 600 top-level employees in the accountability document. They must be punished by the bank “if they do not organize and manage their business area in such a way as to prevent misconduct where possible,” said Finma.
Finma has also launched four foreclosure proceedings against former Credit Suisse managers. He declined to reveal the identities of these former employees. They face up to a five-year ban on practicing their profession.
Credit Suisse announced that from March 2021 it fired several managers and employees and transferred risk supervision to a dedicated risk management function in the division.
Ulrich Körner, a former director of UBS who became chief executive of Credit Suisse last July after heading the asset management division from April 2021, welcomed Finma’s completion.
“This is an important step towards finally solving the problem of supply chain financing,” he said. “The Finma review confirmed many of the findings of the board-initiated independent review and underlines the importance of the actions we have taken in recent years to strengthen our risk and compliance culture. We also remain focused on maximizing fund investor recovery.”
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In March 2021, Credit Suisse closed four Greensill affiliated funds within a short period of time. Greensill, a charismatic Australian banker, persuaded Swiss bank and Swiss investor GAM to invest billions of dollars in his supply chain finance business, which promised to help companies and the public sector by accelerating bill payments and salaries.
In the client’s documentation, the risk of funds was indicated as low. At the time of closing, clients had invested a total of $10 billion in funds. Immediately after the closure, Finma launched an investigation into 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 partnership with Greensill in 2017. Greensill acted as a financing company, securitized claims and transferred securities to four Credit Suisse funds.
Finma’s investigation found that asset management company Credit Suisse “had little knowledge or control over the specific claims”. In fact, it was not Credit Suisse as the fund’s asset manager who selected and reviewed them, but Greensill itself. Credit Suisse also left it to the latter to organize the insurance cover in its own name.
When Greensill informed the bank that it was planning to go public with Credit Suisse and that it needed a bridge loan, the credit manager provided the loan. However, a senior manager overruled that recommendation, Finma said. Credit Suisse has also repeatedly relied on Greensill in its own statements.
