Bloomberg
Credit Suisse replaces Varvel, stops bonuses when customers smoke
(Bloomberg) – Credit Suisse Group AG has called into question the growing repercussions of the collapse of Greensill Capital, acknowledging that the defaults in a $ 10 billion group are now frozen funds that the bank has put forward for their safety. Sin over the collapse of the short-term debt funds, the Swiss bank downgraded one of its top executives, withheld bonuses for some and separated the asset management unit in the midst of the scandal from the much more valuable wealth unit. Gottstein, who has largely drifted away from profound change since taking over a year ago, is struggling with threats of litigation and demands from regulators to own more capital as questions about risk management and controls renew. Clients of wealthy individuals in the Middle East to Swiss pension funds express their anger over potential investment losses, threatening with key ratios far beyond the asset management business. bank said Thursday in its annual report. “The portfolio manager has been told that some of the funds underlying the funds will not be repaid if they claim.” The bank has so far returned about $ 3.1 billion to investors, saying it has an additional $ 1.25 billion in cash in the four funds. The shares of Credit Suisse rose 3.1% in Zurich at 16:18 amid broad gains in bank shares. Prior to today, the bank has lost more than 8% since the freezing of funds on March 1. As part of the changes announced Thursday, Eric Varvel, who oversaw U.S. asset management, will be replaced by Ulrich Koerner next month, until recently the head of the fund unit at rival UBS Group AG. The payment and establishment of variable remuneration for a number of senior employees involved in the Greensill debate (up to and including the executive council) is awaited so that the bank can reconsider it. The asset management will become a separate unit, with Koerner’s reporting. directly to CEO Gottstein. Varvel will work with Koerner in the coming months and then focus on his other roles as CEO of the US holding company and chairman of the investment bank. The changes brought two outside weeks in which the bank launched an internal investigation, brought outside help to deal with the regulators’ queries and wanted to calm investors by returning cash portions of the funds. In most cases, an asset manager has to liquidate a fund, losses are borne by the investors. But for Credit Suisse, which sold the products in business units, the matter is not so clear. The funds were used to invest money for retirees, the bank offered it to corporate treasurers and insurers and offered it as an alternative to cash to wealthy families. Credit Suisse has sold an exorbitant amount of the funds – more than $ 1 billion – through its private banking in the Middle East, according to people familiar with the matter. This was part of the pressure to generate rich cash deposits and investments from wealthy Middle Eastern residents, who regularly own large sums of money in Switzerland. Some of the most important clients of the Swiss bank in the Gulf also borrowed against their investments. in the funds to increase returns, the people said, asking for anonymity to discuss internal information. These clients now have the dual problem of potential losses in the Greensill-linked funds and may be facing an appeal to set up more collateral for their loans. The situation has left Credit Suisse bankers in the region scrambling to save customer relationships, without answering key questions about the extent of possible losses and who will ultimately pay for them. At home in Switzerland, where Credit Suisse is a leading provider of investment management services for retirees, at least one pension plan has put the bank and local politicians under pressure to ensure they get well, according to a person familiar with the matter. The pension asks why the bank did not take action despite warning signs. A spokesman for Credit Suisse declined to comment. The replacement of Varvel is the highest upheaval so far in the aftermath of the Greensill debacle after the bank. has temporarily removed a number of lower-ranking executives while conducting the investigation. He was a veteran of Credit Suisse for almost three decades and took over as head of asset management in 2016 by pursuing a ‘barbell strategy’ to focus on alternative investments on the one hand, and cheaper, passive instruments on the other. to strengthen assets under management, the unit was recently in the spotlight for the wrong reasons. In addition to the issues with the Greensill-linked funds, the setbacks include a $ 450 million impairment loss on a stake in York Capital Management, the closure of two reinsurers, backed by the unit’s insurance-linked security strategy, and an amount of $ 24 million. frank. on seed capital for a real property. The Greensill-linked funds initially invested in loans backed by invoices that would be paid within weeks or months, making it relatively safe. But as they grew to a $ 10 billion strategy, they strayed from that pitch, and much of the money was borrowed against expected future invoices for sales that were merely predicted, Bloomberg reported. Credit Suisse rated the flagship fund the safest on a scale of one to seven, in part because many of the assets were insured. A high-octane version of the fund that did not use insurance still received the second safest rating in investor documents. Credit Suisse decided to freeze it after a major insurer of the assets refused to continue coverage. Some investors are now threatening legal options, Credit Suisse said. Edouard Fremault, a partner at Deminor in Brussels, a company that is financing an investment recovery lawsuit, said his firm had already been approached by about ten investors in the funds. According to a well-known Credit Suisse are private and corporate clients of Credit Suisse in the UK and Switzerland. Questions also remain over the bank’s decision to further boost exposure to the former billionaire financier by offering a $ 140 million bridge loan, and whether chief risk officer Lara Warner played a key role. The bank said it only learned of Greensill’s problems with securing its finance loan on the supply chain on February 22, about a week before Credit Suisse closed the funds. (Add shares in sixth paragraph.) For more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead of the most trusted business news source. © 2021 Bloomberg LP