(Reuters) – Credit Suisse told investors that the $ 7.3 billion debt in its financial fund was low risk because it was insured, but the bank failed to ensure that the policy would pay out, two sources told Reuters.
When Japan's Tokyo Marine, the debt insurance company, refused to renew its coverage with Greensill Capital last month, Credit Suisse was forced to liquidate the fund, saying it could have a significant impact on its performance and reputation.
The bank's shares have fallen by almost a quarter in the past month as they deal with the fallout from Greensill and the effects of losses at its main brokerage division caused by the battered US fund Archegos.
The debt that Credit Suisse bought was issued by Greensill and is supported by loans as the supply chain's finance company to companies. To manage its risk, Greensill took out credit insurance with a subsidiary of Insurance Australia Group (IAG). Tokyo Marine adopted the policy in 201
Financing of the supply chain is a form of financing where suppliers can receive early payment of their invoices.
Credit Suisse assured customers in marketing documents that the debt in the supply chain fund was "low risk." A fact sheet also stated: "The banknotes' underlying credit risk is fully insured by highly ranked insurance companies."
However, sources told Reuters that the bank did not communicate directly with Tokyo Marine to confirm the insurer. had no doubts about the validity of the insurance or that the debt it bought from Greensill was the type covered by the insurance.
Instead, the Swiss bank relied on emailed updates on the insurance from Marsh & McLennan Cos. Inc., the broker who arranged them for Greensill and did not have regular discussions with Marsh to see if the insurer still intended to fulfill the contracts, the sources said.
Reuters could not determine what gave Credit Suisse comfort that its customers were covered by Greensill's insurance and why the bank may not have performed due diligence beyond its limited checks on Marsh.
Two Credit Suisse sources told Reuters in May 2020 and again in January 2021, just two months before ore Greensill and the fund collapsed, that Credit Suisse had confirmed with Marsh that insurance coverage was in place. 19659002] Greensill, Marsh and Tokyo Marine all declined to answer questions about coverage. accept that the policy was binding pending the outcome of its investigation, according to a court application in Australia.
According to Marsh and Tokyo Marine emails provided as evidence in the Australian case, the worker, Greg Brereton, violated a number of internal procedures. Brereton did not respond to a request for comment.
The two people familiar with the matter said that Credit Suisse was not informed of these concerns at the time.
Tokyo Marine, Greensill and Credit Suisse declined to comment. ] Three insurance experts interviewed by Reuters said that Tokyo Marine and Marsh were not obliged to tell Credit Suisse, because even though the fund was the recipient of the insurance, it was not a policyholder.
Neither Marsh nor Tokyo Marine could have told Credit Suisse if the debt it had purchased from Greensill met the insurance terms because the bank did not provide a list of the specific bonds and requested checks, three sources said.
The three insurance experts said that Credit Suisse would have lost the ball if it did not make its own regular checks with Tokio Marine, given the crucial nature of the insurance for the value of the Greensill bonds it bought for its customers.
Credit Suisse has warned investors that there was "significant uncertainty" about how much money they would get back and said in its annual report that some customers had threatened to sue over the fund's collapse.
Four sources told Reuters that Credit Suisse was considering compensating investors in the fund, because there were concerns the debate could lead to wealthy customers turning their backs on the bank.
When it ceased coverage in March, Tokio Marine said in a statement that Greensill was only covered for money lent to companies supported by receivables – invoices they received for delivered goods and services. According to Reuters' policy, debts must be backed up by receivables.
However, Credit Suisse had also purchased Greensill bonds that lacked such collateral, according to corporate and legal applications. The bank declined to comment.