Credit Suisse could spin-off asset management arm following Greensill Capital collapse

The company recently suspended $10bn worth of Greensill-linked supply chain finance funds, citing valuation concerns

FILE PHOTO: Credit Suisse Chief Executive Thomas Gottstein addresses the Finanz und Wirtschaft Forum conference in Zurich, Switzerland September 2, 2020 REUTERS/Arnd Wiegmann/File Photo

Credit Suisse chief executive Thomas Gottstein signalled he’d consider further separating the asset-management unit from the rest of the bank after the Greensill Capital collapse, as he steps up efforts to limit the reputational damage from the supply-chain finance scandal.

Making asset management an independent entity is “potentially part of the plan”, Mr Gottstein said in a Bloomberg interview, days after the bank replaced the head of the business and removed it from direct oversight of the wealth management unit. “Having a holding company around that could be something we are pursuing,” he said, adding that the Greensill affair for Credit Suisse is primarily an asset-management problem.

The Swiss bank is contending with the worst crisis since a spying scandal a year ago, after it was forced to suspend $10 billion of supply-chain finance funds managed with Greensill over concerns about their valuation. As the fallout deepens, the bank is grappling with litigation threats from investors, potential financial losses and regulatory scrutiny. It's now turning to ex-UBS Group executive Ulrich Koerner to revive the asset management unit, replacing 30-year veteran Eric Varvel.

“Clearly, Greensill is a distraction and something that we are working through now but the operational results that we have in the first two months show we are on the right path,” Mr Gottstein, said, speaking ahead of the bank’s Asian Investment Conference. Despite the turmoil, the bank had its best start to a year in a decade, with revenue at the securities unit rising more than 50 per cent through to February.

Mr Gottstein’s comments indicate that the steps taken just last week to rein in the Greensill crisis still may not be enough. In addition to replacing Mr Varvel, it has suspended senior staff bonuses and announced an investigation into its exposure to Lex Greensill’s failed trade-finance empire. Asked if responsibility at the senior level stopped with the head of asset management, Mr Gottstein said any further decisions would be subject to the board’s review.

The investigation will determine whether there were shortcomings in defence lines, but it is too early to talk about what the results might be, or who else could be held responsible, Mr Gottstein said. “I am actually quite confident that we will come out stronger from this episode,” he said. “It is a learning process.”

Clients from rich individuals in the Middle East to Swiss pension funds are expressing their anger over potential investment losses, threatening key relationships far beyond the asset management business.

The funds offered by asset managers were touted as among the safest. But they contained investments tied to future sales of Greensill’s borrowers, way beyond the traditional preserve of supply-chain finance. Investors face losses as those funds are liquidated, with some considering litigation.

The bank has so far returned about $3.1bn to investors and said it has an additional $1.25bn in cash across the four funds. The lender also made a loan of about $140 million to Greensill late last year, of which $50m has been recovered.

Mr Gottstein said he was “100 per cent focused now to get as much back in terms of cash to our investors”.

Mr Koerner, whom Mr Gottstein said was the “exact right person” to strengthen the asset manager’s lines of defence, had at previous employer UBS Group explored merging the asset management business with Deutsche Bank’s DWS. Those 2019 talks stalled over disagreement on who would retain majority control.

The Greensill debacle is the latest in a string of mishaps at the asset manager, which until the decisions of last week was housed inside the much bigger international wealth management business. Mr Gottstein said he’s long had doubts about the logic of that arrangement.

The Greensill issues, he said, accelerated his decision to split asset management into its own division with its own “first and second line divisional support that it needs and warrants”.

“Risk control has always been a top priority,” he said. “I’m absolutely focused on that – not only now, I was, and I will be.”

Beyond Greensill, Mr Gottstein said the bank was focusing on growing in Asia. The region already accounts for 20 per cent of the bank’s revenues and Credit Suisse is looking for 100 per cent ownership of its joint ventures in China as well as acquiring the required licences to provide advice to China’s wealthiest.

Mr Gottstein also signalled that the bank is looking for opportunities to be part of the ongoing consolidation of the banking industry within Europe.

“There are various opportunities in various areas for us, particularly in private banking,” he said. The bank’s growth strategy is “predominantly an organic strategy, but we are opportunistic to look at inorganic opportunities as well”.