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Credit Suisse Cuts Risk as Defections Mount in Wake of Scandals

(Bloomberg) — Credit Suisse Group AG is grappling with how to keep top bankers from fleeing to competitors and drastically reducing risk as new Chairman Antonio Horta-Osorio seeks to recover from a series of scandals.The lender is cutting ties with SoftBank Group Corp., a backer to Lex Greensill’s collapsed supply-chain finance empire, and it’s temporarily barring clients from withdrawing all of their cash from a fund that invests with Renaissance Technologies after the strategy tanked and investors rushed for the exit.It’s also considering retention bonuses for top performers to stabilize the business as defections mount in the wake of the Greensill debacle and the implosion of Bill Hwang’s Archegos Capital Management, which contributed to a first-quarter pretax loss of 900 million francs ($1 billion).“They’re looking a bit like a basket case right now,” Octavio Marenzi, chief executive officer of capital markets consulting firm Opimas, said Friday in a phone interview. “The Archegos thing is really bad, and what happens after an event like that is people start to pick on them. They’re seen as the weakest kid in the class.”Some of the firm’s senior talent is streaming for the exits. Its top financial services banker, Alejandro Przygoda, is leaving for Jefferies Financial Group Inc., along with at least three colleagues, people familiar with the matter have said. That followed the recent departures of at least four other members of the financial institutions group to competitors including Barclays Plc., Bank of America Corp. and Goldman Sachs Group Inc.Shares of Zurich-based Credit Suisse have tumbled about 14% this year, the only decline among 35 companies in the Bloomberg Europe 500 Banks & Financial Services Index, which has surged 26%.Credit Suisse will no longer do any new business with SoftBank, people with knowledge of situation said, a decision that may ripple across the firm’s investment bank. SoftBank has been a prolific dealmaker, and last year Credit Suisse and other banks held about $8 billion of SoftBank shares in collateral, pledged by founder Masayoshi Son.A SoftBank Group spokesperson wasn’t immediately available to comment, while Credit Suisse declined to comment.Horta-Osorio, 57, who succeeded Urs Rohner as chairman last month, pledged a wide-ranging review after the bank was forced to suspend billions of dollars of funds it managed with Greensill and took a $5.5 billion hit on Archegos, raising questions about the oversight of key clients.Credit Suisse conducted an internal review into the Greensill funds after allegations of possible conflicts of interest involving SoftBank last year. A number of SoftBank portfolio companies received loans via supply-chain funds at Credit Suisse, while SoftBank was also an investor in the Credit Suisse funds.In the aftermath, SoftBank pulled $700 million from the funds and the bank changed its investment guidelines for Credit Suisse’s funds to reduce the maximum exposure to a single borrower.The overlapping financial relationships raised questions about whether SoftBank was using the Credit Suisse funds to prop up investments in the Vision Fund, including Greensill Capital, in which it had a substantial stake.SoftBank wrote down its $1.5 billion Greensill holding to almost zero after Credit Suisse was forced to unwind its four Greensill-linked funds in March, people familiar with the matter have said. SoftBank is now seeking $1.15 billion in claims as part of Greensill’s insolvency proceedings.Credit Suisse marketed the popular supply-chain finance funds as among its safest investments because the funds were insured and the loans they held backed by invoices typically paid within weeks. But as the funds grew into a $10 billion strategy, they strayed from that pitch and much of the money was loaned through Greensill against expected future invoices, for sales that were merely predicted.Greensill’s collapse forced Credit Suisse to liquidate the funds.Gupta’s BusinessThe Greensill debacle is also at play in claims that Credit Suisse executives ignored warnings from colleagues about troubled steel tycoon Sanjeev Gupta as they channeled $1.2 billion of client funds to his businesses. Bankers in Credit Suisse’s commodity trade-finance unit blacklisted Gupta’s Liberty Commodities Ltd. in 2016 because they suspected some of its deals weren’t legitimate, according to people familiar with the matter.When they learned roughly two years later that the bank was lending to his companies through a suite of investment funds, which eventually grew to $10 billion, they flagged their concerns to leaders in compliance and the division that housed the loans, one of the people said.The disclosure that Credit Suisse may have put clients at risk despite internal concerns over Gupta’s businesses adds a new twist to the debacle stemming from the March implosion of Greensill, the finance firm at the center of the three-way relationship. The U.K. Serious Fraud Office is now investigating Gupta’s group of companies for suspected fraud, including in its financing deals with Greensill, according to a May 14 statement.“We are currently focusing our efforts on recovering our investors’ money,” Will Bowen, a spokesman for Credit Suisse in London, said in an emailed statement, adding that the bank’s internal probe will focus on “all of the issues” linked to the funds. “We are committed to learning the lessons and will share the relevant lessons learned at the appropriate time.”Andrew Mitchell, a spokesman for the Gupta Family Group Alliance, or GFG Alliance, a collective of businesses linked to Gupta including Liberty Commodities, denied any wrongdoing.RenTech FundSeparately, Credit Suisse is temporarily barring clients from withdrawing all their cash from a fund that invests with RenTec.The bank has invoked a so-called hold-back clause, after assets in the CS Renaissance Alternative Access Fund slumped to about $250 million this month from approximately $700 million at the start of last year, according to people with knowledge of the matter. While investors will receive 95% of their redemption requests after two months, the remaining 5% is expected to be paid out in January, after the fund’s year-end audit, the people said.The fund lost about 32% last year, in line with the decline in the Renaissance Institutional Diversified Alpha Fund International fund that it invests into, the people said. Renaissance, regarded as one of the most successful quant investing firms in the world, was rocked by billion of dollars in redemptions earlier this year after unprecedented losses in 2020. Three of its funds open to external investors fell by double digits last year.Credit Suisse and Renaissance declined to comment.More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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