Shares of Credit Suisse fell nearly 25% in the past month as it grappled with the fallout from the Greensill debacle, as well as losses to its blue chip brokerage division caused by the recent bankruptcy of Archegos Capital Management, Reuters reported.
The debt that Credit Suisse bought from Greensill was backed by loans made by the supply chain finance company to other companies, according to Reuters. To mitigate the risk of debt, Greensill purchased credit insurance from a subsidiary of Insurance Australia Group (IAG). Tokio Marine assumed the policies when the subsidiary was bought out in 2019.
Supply chain financing is a form of financing that allows suppliers to receive prepayment of their invoices.
In marketing materials, Credit Suisse has told clients that the supply chain fund‘s debt is low risk. “The underlying credit risk of the notes is fully insured by highly rated insurance companies,” the bank said in a backgrounder.
However, the bank apparently did not speak directly to 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 indeed covered by the policies. fonts, according to Reuters. Rather, the bank relied on updates emailed by Marsh McLennan, the broker who organized Greensill’s policies. However, Credit Suisse did not verify with Marsh whether Tokio Marine still intended to honor the contracts.
Sources at Credit Suisse told Reuters in May 2020, and again in January – just two months before the Greensill collapse – that the bank had confirmed to Marsh that the cover was in place.
Tokio Marine told Greensill in August that it was studying the validity of certain policies because an employee had exceeded their underwriting powers. Sources told Reuters that Credit Suisse was not made aware of the investigation at the time.
However, neither Tokio Marine nor Marsh were obligated to inform Credit Suisse because even though the bank fund was the beneficiary of the insurance, it was not a policyholder. And neither could have told Credit Suisse whether the debt it bought from Greensill met the terms of the policy, as the bank did not provide a list of specific obligations to check. , Reuters reported.
“They clearly haven’t done their due diligence,” Scott Levy, managing director of Bedford Row Capital, told Reuters. “If Credit Suisse was doing its job right, there’s no way they haven’t identified these issues.”