Bloomberg
Credit Suisse replaces Varvel, interrupts bonuses while customers smoke
(Bloomberg) – Credit Suisse Group AG rushed to contain the increasing consequences of the Greensill Capital collapse by recognizing that the defaults are arriving on a group of $ 10 billion of now frozen funds that the bank has touted for its security. Facing customer fury and regulatory investigations into the collapse of short-term debt funds, the Swiss bank downgraded one of its top executives, retained bonuses for some, and separated the asset management unit at the center of the very wealth unit scandal. most valuable. Gottstein, who has largely avoided making profound changes since taking office a year ago, is facing threats of litigation and demands from regulators to retain more capital while the crisis renews risk management and control issues. Clients of wealthy people in the Middle East to Swiss pension funds are expressing their anger over potential investment losses, threatening key relationships far beyond the asset management business. “There remains considerable uncertainty as to the valuation of a significant portion of the remaining assets,” the bank said in its annual report on Thursday. “The portfolio manager has been informed that some of the notes underlying the funds will not be repaid upon maturity.” The bank has already returned about $ 3.1 billion to investors and said it has an additional $ 1.25 billion in cash in the four funds. Credit Suisse shares rose 3.1% at 4:18 pm in Zurich, amid gains in bank stocks. To date, the bank has lost more than 8% since the funds freeze on March 1. As part of the changes announced on Thursday, Eric Varvel, who oversaw US asset management, will be replaced next month by Ulrich Koerner, until recently the head of the fund’s unit at rival UBS Group AG. The payment and acquisition of variable remuneration for a number of senior employees involved in the Greensill disaster – up to and including the executive board – is on hold for the bank to reconsider. Joint management will become a separate unit, with Koerner 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 bank’s American holding company and chairman of the investment bank’s board. The changes cover two frantic weeks in which the bank launched an internal investigation, brought in outside help to deal with regulators’ doubts and sought to calm investors by returning cash portions of the funds. In most cases, when an asset manager has to settle a fund, losses are borne by investors. But for Credit Suisse, which sold products between business units, the case is not so clear. The funds were used to invest money for retirees, the bank sold them to treasurers and corporate insurers and offered them to wealthy families as an alternative to money. Credit Suisse sold a disproportionate amount of funds – more than $ 1 billion – through its private banking arm in the Middle East, according to people familiar with the matter. It was part of an effort to move wealthy people from the Middle East, who often hold large amounts of money in Switzerland, from expensive cash deposits to tax-generating investments. Some of the Swiss bank’s most important clients in the Gulf have also made loans against their assets in the funds to increase returns, people said, requesting anonymity to discuss internal information. These customers now face the double problem of potential losses in funds linked to Greensill and possibly ask to place more guarantees for their loans. The situation left Credit Suisse bankers in the region struggling to save customer relations, without being able to answer key questions about the extent of possible losses and who will end up paying 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 pressure on the bank and local politicians to make sure they are whole, according to a person familiar with the subject. The pension is asking why the bank did not act despite the warning signs, the person said. A Credit Suisse spokesman declined to comment. Varvel’s replacement marks the highest-level jolt so far in the wake of the Greensill disaster, after the bank temporarily removed several lower-level managers while conducting the investigation. A veteran of Credit Suisse for almost three decades, he took over as head of asset management in 2016, pursuing a “bar strategy” focused on alternative investments, on the one hand, and cheaper passive instruments, on the other. To boost assets under management, the unit has recently stood out for the wrong reasons. In addition to issues with funds linked to Greensill, the setbacks include a loss of $ 450 million in a stake in York Capital Management, the closing of two reinsurers supported by the unit’s bond-linked strategy and a charge of 24 million. francs in the starting capital for a real estate vehicle. The funds linked to Greensill initially invested in loans secured by invoices that would be repaid in a matter of weeks or months, making them relatively safe. But as they grew up on a $ 10 billion strategy, they deviated from that argument and much of the money was borrowed against expected future invoices, for sales that were merely foreseen, Bloomberg reported. Credit Suisse rated the primary fund as the most secure 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 them after a major asset insurer 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 funds investment recovery litigation, said his company has already been approached by about 10 fund investors. The investors are private and corporate clients of Credit Suisse in the United Kingdom and Switzerland, according to an acquaintance. Credit Suisse warned earlier this week that it could suffer a financial blow related to Greensill. Doubts also remain around the bank’s decision to increase its exposure to the billionaire former financier by granting a $ 140 million bridge loan last fall, and whether risk director Lara Warner played an important role. The bank said it only learned of Greensill’s problems in securing insurance coverage for its supply chain financial loans on February 22, about a week before Credit Suisse closed the funds. (Adds shares in the sixth paragraph.) For more articles like this, visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source. © 2021 Bloomberg LP