Greensill's demise has taken Credit Suisse's risk chief and executive board by surprise.
Credit Suisse revealed more details about its exposure to the collapse of Greensill Capital, a supply chain finance startup in the United Kingdom, in March 2021, and how the bank was caught off guard.
Credit Suisse was one of the banks most affected by the collapse of Greensill, which occurred the same month as the collapse of U.S. hedge fund Archegos Capital Management. In the Archegos collapse, Credit Suisse lost approximately $5.5 billion; an independent report commissioned by the bank concluded that a series of missteps by its risk and compliance function failed to escalate numerous red flags.
In response to questions from the Swiss-based Ethos Foundation, Credit Suisse admitted Monday that "individual managers and employees could have averted the reputational damage and economic failure if they had conducted themselves in prior years more appropriately." However, the bank defended its due diligence efforts, claiming that Greensill or its founder, Lex Greensill, had given "no earlier indications" that the company would fail before its credit insurance ran out.
Greensill informed Lara Warner, Credit Suisse's then-chief risk and compliance officer, on Feb. 22, 2021, that the bank's insurance would expire six days later, according to the bank. Warner informed the executive board, which in turn informed the board of directors of the bank.
"The chief risk officer and the executive board of [Credit Suisse] were extremely surprised that Lex Greensill informed them of this fact only a few days before the expiration of the insurance," the bank said. "Anyone would have expected an earlier orientation when such a problem arose. Lex Greensill explained this by stating that, due to what Greensill claimed was a missed insurance deadline, he had assumed that the insurance policy would not expire at the end of February 2021. This explanation could not be verified by [Credit Suisse]. "
When asked why Credit Suisse was unaware that Greensill was having trouble finding a new auditor in October 2020, Warner and the executive board said they "had not been informed." Credit Suisse sought answers after negative media reports about Greensill surfaced in 2019 and 2020, but Greensill "was able to provide satisfactory explanations" in each case, and no further action was taken, according to the bank.
The bank is still trying to recover funds for investors, so an internal investigation report into the Greensill matter has yet to be released. It stated that it intends to pursue legal action and that the process could take up to five years.
Warner stepped down in April 2021, following the failures of Greensill and Archegos, and the bank separated its compliance and risk functions. Credit Suisse has overhauled its risk management board of directors and announced that it will restructure its asset management arm and exit prime services, the division of its investment bank most closely linked to risk and compliance issues.
Credit Suisse said it fired ten employees as a result of the Greensill scandal. Compensation clawbacks totaling $43 million were among the additional disciplinary measures.
Credit Suisse acknowledged the "Suisse Secrets" report from February, in which a group of journalists combed through leaked bank records and exposed dozens of accounts belonging to corrupt politicians, criminals, spies, dictators, and other shady characters. According to the bank, 90% of the accounts detailed in the report were closed or in the process of being closed at the time of the report, and no new information has emerged to cause concern.
"We are comfortable that based on the results of our preliminary investigation to date there are no new concerns which have been identified and actions taken were in line with applicable processes and requirements at the relevant time and in accordance with our legal and regulatory obligations," the bank stated.
By fLEXI tEAM