Credit Suisse Fighting a Battle on Both Fronts

By Glenn Dyer | More Articles by Glenn Dyer

Embattled Swiss bank Credit Suisse took two separate actions on Tuesday – both of which will end up seeing the bank lose billions of dollars.

The first was an attempt to wind up the Whyalla Steelworks in South Australia as it tries to recover billions of dollars for more than 1,000 investors who sunk money into invoices that were packaged into bonds by the collapsed firm Greensill Capital.

These bonds were supposed supply chain finance deals with GFG, part of the empire (which includes Whyalla) built by Anglo-Indian businessman, Sanjeev Gupta.

There is now considerable doubt about the worth of those bonds and the deals that underpinned them – doubt brought about by the collapse of Greensill last month.

Citigroup applied to the NSW Supreme Court on Tuesday for the winding up order against the steelworks and the Tahmoor coal mine, located south of Sydney.

The winding up application includes consent from liquidators, McGrathNicol for it to act as liquidator over two companies owned by Mr Gupta, including OneSteel Manufacturing, the entity that owns the Whyalla steel mill, and Tahmoor Coal, which owns the mine near Sydney.

A first hearing for the application will be on May 6.

Citigroup is the trustee of Greensill’s bonds which were part of Greensill’s complex financing arrangements with Credit Suisse. A similar winding up application in London on behalf of Credit Suisse was also filed by Citigroup.

Credit Suisse has already appointed McGrathNicol as a receiver to Greensill’s Australian parent company to recover a bridging loan it provided to Greensill that was secured by shares in the local Greensill company.

It is an unmitigated mess.

The second move was to reveal a loss of $US4.7 billion (4.4 billion Swiss francs) and the departure of two top executives over the failed loans and other deals with the secretive hedge fund, Archegos Capital Management.

As a result the bank now expects to post a loss for the March quarter of around 900 million Swiss francs ($US960 million). It is also suspending its share buyback plans and cutting its dividend by two thirds to just 10 cents a share.

Credit Suisse however did not reveal a loss figure for its dealings with Greensill and Sanjeev Gupta’s Liberty House and GFG groups which control steel, aluminium, oil and coal assets in Australia (Whyalla steelworks, the associated iron ore mine, a separate steel company and the Tahmoor coal mine south of Sydney) and elsewhere.

Credit Suisse confirmed media reports that its chief compliance officer had gone, along with the head of the investment bank.

Reuters said Credit Suisse, Switzerland’s No. 2 bank was still selling off billions of dollars in shares held as security to loans to Archegos and has been trying to unload them into the market this week – the figure is estimated at $US2 billion worth of shares.

“The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable,” Credit Suisse Chief Executive Thomas Gottstein said in a statement. “Serious lessons will be learned. Credit Suisse remains a formidable institution with a rich history.”

US market analysts estimate that combined losses for Credit Sussie from the Archegos and Greensill scandals could add up to $US7.5 billion.

But there so far there has been no estimate of losses from the Greensill deals. The bank has started investigating the $US10 billion in supply chain funds which invested in bonds issued by Greensill.

German banking regulators say they have paid $US3.2 billion to 20,500 customers of Greensill’s German banking subsidiary that was seized last month and shut down. The bank had a reported $US7 billion os assets at the end of 2020.

 

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →