Credit Suisse scrambles to contain $10 billion Greensill aftershocks

By Brenna Hughes Neghaiwi and Iain Withers

ZURICH (Reuters) - Credit Suisse grappled with the fall-out of Greensill Capital's insolvency on Wednesday, as the head of its European asset management division temporarily stepped aside and it appointed receivers to recover a $140 million loan in Australia.

The Swiss bank was a key source of funding for the speciality finance firm, selling $10 billion worth of securities created by Greensill to investors via its asset management arm.

Greensill began to unravel last week after losing insurance coverage for its debt repackaging business, prompting Credit Suisse to freeze its Greensill-linked funds.

Three Credit Suisse employees, including the head of its European asset management division, who helped oversee the Greensill funds have temporarily stood aside.

Japanese insurer Tokio Marine Holdings Inc, which provided $4.6 billion of coverage to Greensill credit notes, said on Wednesday that it was investigating the validity of those policies.

Tokio Marine's exposure to Greensill comes via a company it bought from Insurance Australia Group in 2019.

A source familiar with the situation said the policies were directly linked to the $10 billion worth of funds frozen by Credit Suisse.

In a note to investors on Tuesday, Credit Suisse said it had not been informed of any insurance cancellation "until very recently," and that existing policies from Insurance Australia had remained unchanged.

Credit Suisse declined comment on the probe by Tokio Marine.

If Greensill's lending practices did not meet standards laid out in the insurance contract or were inconsistent with normal accounting rules, then an insurer would have grounds to challenge whether coverage applied, supply chain experts have said.

Greensill declined to comment.

"We have concerns about the validity of all Greensill policies and are conducting an investigation," Tokio Marine spokesman Tetsuya Hirano said.

Hirano said that the $4.6 billion worth of coverage attributed to Tokio Marine Holdings in court filings did not reflect the likely loss. He declined to comment further.

Credit Suisse is in the process of liquidating its Greensill funds and has so far made $3.05 billion worth of payments to investors. It has said further liquidation proceeds will be paid out "as soon as practicable".

A BLOW FOR THE CEO

The funds' troubles are a blow for chief executive Thomas Gottstein, who took the helm in the aftermath of a spy scandal and just as the coronavirus crisis struck. The asset management unit behind the Greensill strategy was hit by a large impairment charge on a hedge fund investment in the fourth quarter.

Credit Suisse said in a memo sent to employees on Wednesday that Michel Degen, head of asset management in Switzerland and the EMEA region, was temporarily stepping aside along with managers Luc Mathys and Lukas Haas.

Reuters could not immediately reach Degen, Mathys or Haas for comment. According to their LinkedIn profiles, Mathys ran fixed income at the division and Haas worked in credit risk management. Haas was listed as the fund manager for some of the Greensill funds according to various fund websites.

Meanwhile in Australia, two people familiar with the matter said that Credit Suisse had appointed receivers to recover a bridging loan of about $140 million made to a Greensill company.

Receivers from McGrathNicol have been appointed to attempt to recover the loan from Greensill Capital Pty Ltd after it filed for insolvency protection in London and in Australia on Monday, said the people, who spoke on condition of anonymity.

McGrathNicol and Credit Suisse both declined to comment, while Greensill did not return calls seeking comment.

Credit Suisse was advising Greensill on a potential IPO last year and had lent it the $140 million on expectations the loan be repaid when it listed, one of the people said.

Greensill, which is still registered in its founder Lex Greensill's hometown city of Bundaberg in Queensland Australia, said in court documents it would be unable to repay the loan.

It also said that it faced "defaults" by its key customer, GFG Alliance, which is controlled by Sanjeev Gupta. The Indian-British steel magnate has said GFG is operationally strong.

(Reporting by Brenna Hughes Neghaiwi in Zurich and Iain Withers in London; Additional reporting by Paulina Duran in Sydney and Makiko Yamazaki in Tokyo; Writing by Alexander Smith; Editing by Carmel Crimmins)

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