Credit Suisse 'seriously breached' duty in Greensill affair: watchdog

Credit Suisse "seriously breached its supervisory obligations" regarding risk management in its business relationship with financier Lex Greensill and his companies, the Swiss financial watchdog said Tuesday.

Switzerland's second biggest bank saw its asset management branch rocked by the 2021 bankruptcy of British financial firm Greensill, in which it had committed some $10 billion through four funds.

Closing its inquiry, the Finma financial watchdog said in a statement that it had ordered "remedial measures".

The bank will have to periodically review its 500 most important business relationships "at executive board level", Finma said.

The watchdog also said it had opened four enforcement proceedings against former Credit Suisse managers, whom it did not name.

In March 2021, the bank closed four funds in which around $10 billion had been invested. The funds had been described as "low" risk, Finma said.

However, questions had been raised since 2018, including by Finma itself, when another institution had closed a fund connected to Greensill.

While "many critical observations" were available, Credit Suisse had "too few appropriate reactions", Finma concluded.

- Risks ignored -

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 bank used employees who were responsible for the business relationship with Greensill and were therefore not independent to deal with warnings.

- Supervisory duty -

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 percent of the total.

Among the Finma remedial measures, the bank will have to "record the responsibilities of its approximately 600 highest-ranking employees in a responsibility document".

Shares in Credit Suisse fell one percent to 2.81 Swiss francs in afternoon trading on the Swiss stock exchange which was also down.