Credit Suisse has warned clients that its efforts to recover money it lent through bankrupt financial firm Greensill Capital will cost $291 million, as the Swiss bank prepares for five years of protracted legal battles and… disputed insurance claims.
The total is more than double its previous estimate of $145 million, which it said it would spend in a year, and is a blow to the bank’s wealthy customers who are already suffering billions of dollars in losses from $10 billion in supply chain finance funds. he set up with Greensill.
“The revised provisions cover a term up to 2026, a much longer term than the original provisions, which explains the increase from previously disclosed figures,” the bank said in an update to clients on Monday.
Last year, Credit Suisse suspended a $10 billion supply chain finance fund suite linked to Greensill, which collapsed in administration amid allegations of fraud.
While $7.3 billion was raised, the bank warned that around $2 billion would be difficult to recover. The decision to pass the additional costs on to clients has sparked discontent among the funds’ 1,200 investors. Bank advisers and marketing materials told them they were investing in low-risk products, fully insured against loss.
The costs include legal advisory and restructuring fees, insolvency charges and money paid to support Greensill and pay its skeletal staff, which cost $10 million last year.
“It’s devastating that investors are paying for all these expenses that are based on a mess by Credit Suisse,” an investor in the funds told the Financial Times. “Most importantly, a lot of that spending is keeping Greensill alive.”
If a skeletal Greensill staff is not retained, the bank says it could not claim non-payment of invoices under the company’s insurance policies.
“The turnaround work that Credit Suisse continues to prioritize on behalf of fund investors inevitably entails external spending,” the bank said on Monday. “Credit Suisse bears these expenses as much as possible and will seek to recover the amount we have incurred if necessary.”
In an attempt to assuage investor anger, Credit Suisse introduced a fee waiver program for clients invested in the funds, resulting in a 29 million Swiss franc ($30 million) drop in revenue of the bank during the first three months of the year.
Credit Suisse has identified $2.3 billion linked to three debtors – struggling industrialist Sanjeev Gupta’s GFG Alliance, US mining firm Bluestone Resources and SoftBank-backed construction company Katerra – who have been difficult to retrieve.
He signed an agreement with Bluestone last month to begin recovering some of the $690 million that West Virginia Governor Jim Justice’s group owes clients of the Swiss bank.
The settlement – which will see Bluestone repay $260 million over two years and Credit Suisse clients will have the right to share proceeds from any sale of the mining business – is the result of year-long discussions between negotiators of Credit Suisse and the Justice family.
Credit Suisse is also suing British metals magnate Sanjeev Gupta for $1.3 billion that its GFG Alliance borrowed from the bank’s funds through Greensill.
Another $440 million is owed by Katerra, which filed for bankruptcy with more than $1 billion in debt last June. Credit Suisse has filed a lawsuit against SoftBank, the Japanese conglomerate whose $100 billion Vision Fund backed Katerra.
The bank also filed 16 insurance claims.