INSIGHT-Greensill insurance mystery raises temperatures at Credit Suisse
By Tom Bergin
LONDON, April 1 (Reuters) – Credit Suisse told investors that its $ 7.3 billion financial fund debt was low risk because it was insured, but the bank failed to ensure that the policies are reimbursed, two sources told Reuters.
When Japan’s Tokio Marine, the debt insurer, refused to renew its coverage with Greensill Capital last month, Credit Suisse was forced to liquidate the fund and said it could have a significant impact on its results and its performance. reputation.
The bank’s shares have fallen nearly a quarter in the past month as it grapples with the Greensill fallout and the impact of losses to its blue-chip brokerage division caused by the struggling US fund Archegos.
The debt purchased by Credit Suisse was issued by Greensill and backed by loans from the corporate supply chain finance company. To manage its risk, Greensill has taken out credit insurance with a subsidiary of Insurance Australia Group (IAG). Tokio Marine assumed the policies in 2019 when he purchased the unit.
Supply chain finance is a form of finance in which suppliers can receive early payment of their invoices.
Credit Suisse has assured clients in marketing materials that the supply chain fund’s debt is “low risk.” In a backgrounder, he also said: “The underlying credit risk of the notes is fully insured by well-rated insurance companies.”
The sources, however, told Reuters that the bank did not communicate directly with Tokio Marine to confirm that the insurer had no concerns about the validity of the policy or that the debt it purchased from Greensill was the type of policy covered.
Instead, the Swiss bank relied on emailed updates on policies from Marsh & McLennan, the broker who arranged them for Greensill, and did not have regular discussions with Marsh to to check whether the insurer still intended to honor contracts, the sources said.
Reuters could not determine what made Credit Suisse confident that its clients were covered by Greensill’s insurance and why the bank may not have performed due diligence beyond its controls. limited to Marsh.
Two Credit Suisse sources told Reuters in May 2020 and again in January 2021, just two months before the collapse of Greensill and the fund, that Credit Suisse confirmed to Marsh that insurance coverage was in place. .
Credit Suisse declined to answer questions about the insurance information it had sought from Tokio Marine, Marsh, Greensill or others.
Greensill, Marsh and Tokio Marine all declined to answer questions about the coverage.
Tokio Marine told Greensill in August 2020 that she was investigating whether certain policies had been validly issued because an employee had exceeded her underwriting powers and that she would not agree to the policies being binding pending the outcome of her. investigation, according to court documents in Australia.
According to emails between Marsh and Tokio Marine presented in evidence in the Australian case, the employee, Greg Brereton, violated a number of internal procedures. Brereton did not respond to requests for comment.
Both people familiar with the matter said Credit Suisse was not made aware of the concerns at the time.
Tokio Marine, Greensill and Credit Suisse declined to comment.
Three insurance experts interviewed by Reuters said Tokio Marine and Marsh had no obligation to notify Credit Suisse because even though the fund was the beneficiary of the insurance, it was not the policy holder.
Neither Marsh nor Tokio Marine could have told Credit Suisse whether the debt he bought from Greensill met the terms of the policy, as the bank did not provide a list of specific obligations and requested checks, said three sources.
All three insurance experts said Credit Suisse dropped the ball if it did not perform its own regular checks with Tokio Marine, given the critical nature of insurance to the value of the Greensill bonds it has purchased for its customers.
“They clearly haven’t done their due diligence,” said Scott Levy, managing director of Bedford Row Capital, which organizes the bond issues. “If Credit Suisse was doing its job correctly, there is no way they could not have identified these problems.”
The head of Credit Suisse’s European asset management division and two other employees who worked on financial funds have temporarily stepped down, according to an internal bank memo, which did not indicate the reason for the changes.
Reuters was unable to reach managers for comment.
Credit Suisse warned investors that there was “considerable uncertainty” about how much money they would get back and said in its annual report that some clients had threatened to sue over the fund’s collapse.
Four sources told Reuters that Credit Suisse was considering compensating investors in the fund over fears the debacle would cause high net worth clients to turn their backs on the bank.
When it ceased coverage in March, Tokio Marine said in a statement that Greensill was only covered for money loaned to asset-backed businesses – invoices they had received for goods and services delivered. . The policies seen by Reuters indicate that debts should be secured by receivables.
However, Credit Suisse had also purchased Greensill bonds which lacked such guarantees, according to corporate and legal documents. The bank declined to comment.
Reuters analyzed the assets of Credit Suisse’s supply chain finance fund in 2019 and discovered that it included non-asset backed Greensill bonds.
Reuters told the bank’s public relations department in July 2019 and in May 2020 it did. Credit Suisse declined to comment on Reuters’ analysis twice and again when contacted for this story.
Two Credit Suisse sources told Reuters in May 2020 and January 2021, just two months before the collapse of Greensill and the fund, that Credit Suisse had independently confirmed that insurance coverage was in place.
Credit Suisse fund managers have had occasional communications with Greensill’s broker Marsh, beyond his regular emails to the bank detailing the names of borrowers and the exposure limits in the policy, told Reuters the two sources close to the case.
The bank said in a June 2020 investor update that it had made insurance claims following the collapse of a healthcare provider whose fund had purchased debts through Greensill.
One of the sources said Marsh was involved in conversations with Credit Suisse about the claims. Reuters could not determine which insurer was involved or whether the police paid.
(Additional reporting by Carolyn Cohn in London; Editing by David Clarke)