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Credit Suisse Claws Back Bonuses, ‘Restructures’ Asset-Management Unit As Greensill Scapegoating Continues

Last update March 19, 2021

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Tyler Durden March 19, 2021 SNB & CHF

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Summary:
Credit Suisse is still reeling from the collapse of Greensill Capital, a firm which it championed by helping to sell its financial products (created by ensconcing trade invoices in a complex securities wrapper). 8 months after the first reports emerged about the bank’s potential involvement in a risky “circular financing scheme” involving SoftBank and Greensill (which the bank pledged to investigate at the time), CS and its clients have been left holding the bag (after CS gated some billion in funds stocked with Greensill products, claiming that, without insurance coverage, the assets had become impossible to value). And now the bank is understandably eager to scapegoat some employees, in accordance with the Wall Street scandal playbook. According to the FT‘s

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Credit Suisse is still reeling from the collapse of Greensill Capital, a firm which it championed by helping to sell its financial products (created by ensconcing trade invoices in a complex securities wrapper). 8 months after the first reports emerged about the bank’s potential involvement in a risky “circular financing scheme” involving SoftBank and Greensill (which the bank pledged to investigate at the time), CS and its clients have been left holding the bag (after CS gated some $10 billion in funds stocked with Greensill products, claiming that, without insurance coverage, the assets had become impossible to value). And now the bank is understandably eager to scapegoat some employees, in accordance with the Wall Street scandal playbook.

According to the FT‘s latest report on the scandal, Credit Suisse is overhauling its asset management business (separating it out from its broader wealth management unit for fear of the red ink) and suspending bonuses for certain senior executives. The decision comes as CS warned Thursday that some of its clients had threatened litigation. Between the lawsuits and furious clients pulling their money, CS executives are worried that the impact on its operating results could be “material.” What’s even worse (for CS and its shareholders, at least), is that Swiss financial regulator Finma has imposed higher capital requirements on the bank, essentially capping the bank’s potential earnings by limiting the money it can put to ‘economically productive’ use.

Perhaps most galling (at least as far as CS employees are concerned) is that the bank is taking a page out of Goldman Sachs’ crisis-management playbook and weighing whether to claw back bonuses. Of course, as Gary Cohn showed Goldman, sometimes clawing back bonuses is easier said than done.

Credit Suisse said its board had begun an investigation into its ties with Greensill, adding that it would also consider clawing back previously paid bonuses. The controversial supply chain funds were housed within its asset management division, which will now be separated from its international wealth management unit, where it had previously sat.

As CEO Thomas Gottstein (who took the reins from disgraced Tidjane Thiam last February) tries to limit the blowback to his reputation, CS is bringing in a top banker from crosstown rival UBS to lead the rehabilitation of its newly separate asset-management business.

The bank plans to draft in Ulrich Korner, the former head of rival UBS’s asset management division, to lead the unit, replacing Eric Varvel, who will continue at the group in other roles. Korner will report directly into chief executive Thomas Gottstein. “The compensation committee is monitoring developments closely and will determine, based on investigation results, any appropriate actions to be applied,” the bank said. Gottstein said that “I am confident that [Korner] can greatly contribute to the work to be done in the current situation and will lead the new asset management division to future success.”

As the FT reported last week, CS executives actively overruled the bank’s risk managers, who had expressed concerns about the stability of the Greensill products, because the bank was making too much money off the high-yielding assets, which were apparently pretty popular among its clients.

The Financial Times reported last week that Credit Suisse risk managers were overruled by executives when they raised concerns about extending a $140m bridging loan to Greensill in October. Lara Warner, the bank’s chief risk and compliance officer, eventually signed off the loan.

The bank has already “suspended” three top executives in connection with the scandal, but apparently Wall Street is demanding another blood sacrifice, since CS’s management reshuffle has left analysts unimpressed.

One Vontobel analyst said the reshuffle will help CS’s accountants avoid tarnishing the bank’s extremely profitable international wealth-management division. Still, “significant concerns and open questions related to the amount of potential charges and severity of litigation risks remain.”