Credit Suisse failed to recognise the growing risks associated with Greensill’s financing of future receivables, according to a damning review by Switzerland’s financial regulator. 

The Swiss Financial Market Supervisory Authority (Finma) announced today that following an investigation into Credit Suisse’s relationship with collapsed financier Greensill, the bank “seriously breached” its duty to manage risks and had “serious deficiencies” in its organisational structure. 

“Finma thus concludes that there has been a serious breach of Swiss supervisory law,” the regulator says in a statement, adding that it has opened four further enforcement proceedings against former Credit Suisse managers. 

The enforcement action relates to Credit Suisse funds that invested in supply chain finance portfolios originated and managed by Greensill. In March 2021, the bank suddenly closed those funds – at the time worth around US$10bn – after Greensill failed to renew US$4.6bn in insurance cover. 

The regulator singles out future receivables, a practice whereby financing is provided against invoices expected to be issued later, typically where an established and predictable business relationship is in place. 

Finma says this practice involved Greensill financing “some companies whose creditworthiness was doubtful”, and that Credit Suisse had no knowledge or control over the extent to which receivables were “actually contractually owed”. 

“In this context, it relied on the insurance cover organised by Greensill,” the authority says. 

It adds that over time, the risk profile of Credit Suisse’s supply chain finance funds changed considerably, with Greensill including a growing number of future receivables within the bundles of notes receiving investment. 

Lex Greensill, the company’s founder and chief executive, previously told a UK parliamentary inquiry that the value of future receivables in those portfolios increased from around US$470mn in 2018 to more than US$15bn two years later – equivalent to 11% of total asset flow. 


Missing funds 

A portfolio issued by Credit Suisse last week shows that for one Greensill-managed sub-fund, out of a total of US$1.69bn of outstanding payments, US$1.21bn is from programmes that allowed for future receivables. 

The document lists GFG, a network of companies linked to metals tycoon Sanjeev Gupta, alongside Katerra and Bluestone as “focus areas” that are driving ongoing uncertainty. 

For another sub-fund, programmes allowing for future receivables account for US$320mn of a total US$350mn outstanding. Across all Greensill sub-funds, Credit Suisse is still attempting to recover US$2.3bn that has not been returned to investors. 

The portfolio flags the possibility that “future receivables don’t become actual receivables and repurchase is not made” as a potential risk. 

The bank says mitigation actions include making insurance claims where required, as well as daily monitoring of cash inflows, tracking of late payments, and collaboration with relevant administrators. 

More widely, the nature of Greensill-originated future receivables programmes has proven highly contentious in the fallout of the company’s collapse. 

Gupta said in April 2021 that GFG companies had received financing for future receivables from companies it had never done business with, but might become customers in the future, in an open letter to the Financial Times. He added that those potential customers had been selected by Greensill. 

But the following month, Greensill told the UK inquiry that a condition of its future receivables facilities was that an existing business relationship must be in place, underpinned by data. 

A further complication is that the Credit Suisse portfolios show that Liberty Commodities – historically Gupta’s main trading arm – did not have its own future receivables financing line. 

Yet when the Financial Times reported that a company named on Liberty Commodities invoices – German scrap metals trader RPS Siegen – said no such trading relationship existed, Gupta said it had been identified only as a “potential customer”. 


Serious deficiencies 

Finma’s statement heavily criticises Credit Suisse’s senior management and risk management processes in relation to Greensill. 

It says the bank relied on employees who were personally responsible for the relationship with Greensill – and in some cases on information from Lex Greensill himself – in its own statements. 

In effect this means the bank “made partly false and overly positive statements to Finma” about its selection of receivables and exposure to certain debtors. 

In one example, when Greensill was seeking a bridging loan ahead of an IPO, the regulator says a risk manager identified “a number of risks” in its business model and recommended the bank reject the request. However, an unnamed senior manager overruled that recommendation. 

At the management level, Finma’s investigation found a lack of regular or consistent engagement with the risks associated with Greensill, noting that the business relationship was only usually discussed due to a specific event or request. 

The regulator is now imposing on the bank a requirement to review around 500 of its most important business relationships regularly for counterparty risks, and to record the responsibilities of approximately 600 high-ranking employees. 

Finma does not have the authority to issue fines, and did not give further details on the fresh enforcement action against former Credit Suisse managers. 

In a statement, Credit Suisse chief executive Ulrich Körner says the report “has reinforced many of the findings of the board-initiated independent review and 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,” he says. 

The bank adds it has already dismissed several managers and employees, improved oversight and accountability, and reorganised its risk oversight functions including the appointments of new chief risk and chief compliance officers. 

Greensill and GFG declined to comment when contacted.