Credit Suisse executives have calculated that the Swiss bank’s customers could lose up to $ 3 billion in frozen funds associated with the failed specialist financial firm Greensill Capital, an amount equal to the lender’s total net income last year.
The lender spent three weeks trying to dissolve a number of contracts supporting financial supply chain funds, which amounted to $ 10 billion when they were suspended on March 1.
The funds are placed with Credit Suisse’s professional clients as low-risk products that offer a higher return than cash deposits. But several companies to which Greensill lent money have shown that they cannot or do not want to repay their debts, say people familiar with the discussions.
More than 1,000 investors are trapped in the funds. Credit Suisse has already repaid them $ 3.1 billion and plans to repay an additional $ 1 billion in early April, say people who know about those plans.
The GFG Alliance, a steel empire run by industrialist Sanjeev Gupta, jointly owes the funds $ 1.3 billion and has indicated it cannot repay them. Bluestone Resources, a U.S. coal mining group founded by West Virginia Gov. Jim Justice, also said it was “unable” to repay $ 850 million.
Credit Suisse executives do not expect to receive up to $ 400 million borrowed from Caterri, a construction beginner backed by SoftBank. SoftBank pumped money into Greensill last year to cover debts in Katerra, but did not reach Credit Suisse’s funds, the Financial Times reported last week.
There are several other creditors who are “dragging their heels” upon repayment of Credit Suisse funds, according to a person who was familiar with the property restitution process. That brings a maximum exposure of about $ 3 billion – just before the bank’s net income last year, which stood at $ 2.9 billion.
“I would point out that this is a theoretical maximum,” said the person involved in the discussions. “I still expect the losses to be much smaller. . . It could be a long process. “
The bank’s executives are convinced that the fund’s losses could be reduced to between $ 1 billion and $ 1.5 billion once some of the money is returned, other assets recovered in the courts and insurance paid out.
The full losses may not be fully known for months or even years as insurers and lawyers challenge the contracts by which they take over the funds.
Credit Suisse managers discussed potential compensation for investors for part of their losses, which Reuters reported could amount to as much as 50 percent. But senior executives are cautious when they do so because it could call for lawsuits by the bank’s shareholders and increased capital reserves from Finme, the Swiss financial regulator.
Credit Suisse admitted last week that some of its fund’s investors had threatened litigation, adding that outbursts of the crisis could lead to “material” financial losses, client desertion and the demolition of assets under management.
Investors have already reported law firms in Zurich and London to raise claims against the Swiss lender to recoup potential losses.
Credit Suisse declined to comment.