Credit Suisse angers investors with five-year 'hard grind' on Greensill losses

(MENAFN- Swissinfo) Credit Suisse says the 1,200 investors trapped in its funds are unlikely to recoup their losses for at least another five years, if at all. © Keystone / Ennio Leanza

A year on from Greensill Capital's collapse, payments to investors in funds linked to the supply chain finance firm have slowed to a trickle.

The funds held $10bn (CHF9.35bn) of assets, mostly sourced from Credit Suisse's prized ultra-rich clients, and invested in notes provided by Greensill, which in turn lent money to a range of companies. Credit Suisse has so far returned $6.7bn to investors, with a further $600mn held in cash. The bank is now focused on recouping as much of the remaining $2.7bn as it can.

But the process has entered a new attritional phase, focused on tortuous debt renegotiations, lengthy legal cases and disputed insurance claims.

“We're now down to the hard core where it's going to take time,” said a person involved in the recovery process.“I don't think there will be a huge amount of money coming in for a while.”

The bank revealed last week that the 1,200 investors trapped in its funds were unlikely to recoup their losses for at least another five years, if at all.

“We have seen an absolute change in the mood among investors in recent days – the reaction to Credit Suisse's latest disclosure has been one of fury, particularly as they gave the bank the benefit of [the] doubt,” said Natasha Harrison, managing partner of Pallas law firm, which is representing fund investors preparing litigation against Credit Suisse.“Nobody is going to be prepared to wait five years to get their money – and even then there is no certainty they will get it all back.”

Despite anger from clients, Credit Suisse quickly decided it would not make up the shortfall, in part because executives feared it would set a precedent. If the bank offered to underwrite clients' investment losses, it would lead to a large increase in the bank's regulatory capital requirements.

Over the past year, various proposals have been considered that might allow customers to draw a line under the debacle, according to people involved in the discussions.

In one recent idea, customers would have been offered tradable instruments backed by the proceeds of the recovery. Those who were willing to wait could recoup more of their investment, while those in need of short-term cash could sell the instruments at a discount.

However, none of the proposed schemes has progressed beyond the concept stage, owing to their complexity, according to people involved in the plans. The bank is therefore working solely on recovering the funds and repaying customers as the cash slowly drips in.

“None of these schemes has gotten anywhere, so it's back to grinding negotiations with debtors,” said one person involved. The bank did offer affected clients free banking services in an initiative known as Project Sunflower, which cost Credit Suisse $30mn in its first few months.

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While there is this deep-rooted tradition of respect of the environment in Switzerland it does not necessarily extend beyond the country's borders.

The $10bn of assets held by Credit Suisse made up the lion's share of the $17.7bn lent out by Greensill by the time it went into administration last year – $9.3bn of that is still to be recouped, according to an administrator's report last week.

Credit Suisse divides the $2.7bn it still has to recover into four buckets: $1.3bn owed by GFG Alliance, the group of businesses run by UK steel magnate Sanjeev Gupta; $690mn owed by Bluestone Resources, a coal-mining company owned by West Virginia governor Jim Justice; $440mn owed by collapsed US building company Katerra; and about $300mn owed by a collection of smaller debtors who have shown a lack of willingness or ability to repay.

Much of Credit Suisse's early negotiations focused on dealing with Gupta, the Indian-born industrialist, whose sprawling metals empire employs thousands of workers around the world and whose growth was turbocharged by more than $5bn borrowed from Greensill.

Of the $1.3bn GFG owes to Credit Suisse, $274mn is related to its Australian assets, the more profitable part of the group.

Under a deal struck between Gupta and the Swiss bank in October, GFG paid back a third of the money owed by the Australian business and agreed to pay the rest on a monthly basis with interest by mid-2023.

But much of the remaining $950mn is owed by its struggling UK operations, which Credit Suisse negotiators have discounted as being close to worthless. The bank has therefore begun filing insurance claims to recover losses.

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