LONDON (Reuters) – Credit Suisse told investors the debt in its $7.3 billion finance fund was low risk because it was insured but the bank failed to ensure the policies would pay out, two sources told Reuters.
When Japan’s Tokio Marine, the company insuring the debt, declined to renew its coverage with Greensill Capital last month, Credit Suisse was forced to liquidate the fund and said this may have a material impact on its results and reputation.
The bank’s shares have fallen by almost a quarter in the past month as it deals with the fallout from Greensill and the impact of losses at its prime brokerage division caused by the stricken U.S. fund Archegos.
The debt Credit Suisse bought was issued by Greensill and backed by loans the supply chain finance firm made to companies. To manage its risk, Greensill took out credit insurance with a subsidiary of Insurance Australia Group (IAG). Tokio Marine took on the policies in 2019 when it bought the unit.
Supply chain finance is a form of financing in which suppliers can receive early payment of their invoices.
Credit Suisse assured clients in marketing documents that the debt in the supply chain fund was “low risk”. In one factsheet, it also said: “The underlying credit risk of the notes is fully insured by highly rated insurance companies.”
The sources told Reuters, however, that the bank did not communicate directly with Tokio Marine to confirm the insurer had no concerns about the validity of the policy or that the debt it bought from Greensill was the type the policies covered.
Instead, the Swiss bank relied on emailed updates about the policies from Marsh & McLennan, the broker that arranged them for Greensill, and did not hold regular discussions with Marsh to check whether the insurer was still intending to honour the contracts, the sources said.
Reuters could not determine what gave Credit Suisse comfort that its clients were covered by Greensill’s insurance and why the bank may not have engaged in due diligence beyond its limited checks with Marsh.
Two Credit Suisse sources told Reuters in May 2020 and again in January 2021, just two months before Greensill and the fund collapsed, that Credit Suisse had confirmed with Marsh that insurance cover was in place.
Credit Suisse declined to answer questions about what information it had sought about the insurance from Tokio Marine, Marsh, Greensill or others.
Greensill, Marsh and Tokio Marine all declined to answer questions about the coverage.
Tokio Marine told Greensill in August 2020 that it was investigating whether some policies had been issued validly as an employee had exceeded his underwriting authority and it would not accept that the policies were binding pending the outcome of its inquiry, according to court filings in Australia.
According to emails between Marsh and…