Explained: Why Swiss financial watchdog has rebuked Credit Suisse

Credit Suisse, the global investment bank, has received a rebuke from Swiss regulators for “seriously breaching its supervisory obligations” in the context of its business relationship with financier Lex Greensill and his companies. Switzerland’s financial markets authority, FINMA, said on Tuesday that it had concluded enforcement proceedings opened two years ago against Credit Suisse after bank partner Greensill Capital went bankrupt. At the time, Credit Suisse closed four funds linked to the partnership, in which bank clients had invested about $10 billion. FINMA said that in closing its probe, top executives at Credit Suisse will now be required to periodically review about 500 of its most important business relationships and record the responsibilities of about 600 of its highest-ranking employees. The authority said it also had opened four enforcement proceedings against former bank managers, which it did not identify. “FINMA concluded that Credit Suisse Group seriously breached its supervisory duty to adequately identify, limit and monitor risks in the context of the business relationship with Lex Greensill over a period of years,” it said. “FINMA thus concludes that there has been a serious breach of Swiss supervisory law.” The Greensill tangle Greensill was founded by Lex Greensill, a former banker who frequently touted his humble origins growing up on an Australian watermelon farm. The Financial Times has reported that the British financial firm — Greensill — also counted former UK prime minister David Cameron as one of its advisers. Greensill specialised in short-term corporate loans via a complex and opaque business model that ultimately sparked its declaration of insolvency. It bought invoices due to be collected at a discount from firms looking to raise cash and transferred them as securities to the four funds. FINMA said that “overall” Credit Suisse “had little knowledge and control over the specific claims”. “Over time, the risk character of the funds changed decisively,” the watchdog review said. Greensill also at times transferred “future claims to the funds that had not yet arisen” and financed some companies whose creditworthiness was “doubtful”, it said, adding the bank “did not initially realise the consequences of this change”. When Greensill announced plans to launch an IPO, but first needed a bridging loan, a Credit Suisse risk manager “identified a number of risks in Greensill’s business model” and recommended not granting the loan. “A senior manager overruled this recommendation,” FINMA said, also finding that the Zurich-based bank used employees who were responsible for the business relationship with Greensill and were therefore not independent to deal with warnings. Greensill’s collapse threw a number of companies into difficulty who had relied upon its services. It also marked the beginning of a series of scandals that have plagued Credit Suisse. Four weeks later, the Swiss lender was rocked by the implosion of US financial firm Archegos, which cost Credit Suisse more than $5 billion. Since then, it has embarked on a dramatic restructuring plan and in 2022 posted its biggest annual loss since the 2008 financial crisis — 7.3 billion Swiss francs ($7.9 billion). The bank’s chief executive Ulrich Korner — who was brought in to lead the overhaul after first reorganising the asset management branch — welcomed the conclusion of the FINMA inquiry. He said in a statement that it “reinforced” many of the findings of a board-initiated independent review. Korner also said it “underlines the importance of the actions we have taken in recent years to strengthen our risk and compliance culture”. “We also continue to focus on maximising recovery for fund investors.” Of the $10 billion invested through the four funds in Greensill, the bank said it had now recovered $7.4 billion, or 74 per cent of the total. Shares in Credit Suisse fell one percent to 2.81 Swiss francs in afternoon trading on the Swiss stock exchange which was also down With inputs from agencies Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.