The Credit Suisse building is shown in Canary Wharf in London, England. Picture: GETTY IMAGES/CHRIS J RATCLIFFE
The Credit Suisse building is shown in Canary Wharf in London, England. Picture: GETTY IMAGES/CHRIS J RATCLIFFE

Paris/London — Credit Suisse Group executives ignored warnings from colleagues about troubled steel tycoon Sanjeev Gupta as they channelled $1.2bn of client funds to his businesses, according to people familiar with the matter.

Bankers in Credit Suisse’s commodity trade-finance unit blacklisted Gupta’s Liberty Commodities in 2016 because they suspected some of its deals were not legitimate, the people said. When they learnt about two years later that the bank was lending to his companies through a suite of investment funds, which eventually grew to $10bn, they flagged their worries to leaders in compliance and the division that housed the loans, one of the people said.

The disclosure that Credit Suisse may have put clients at risk despite internal concerns over Gupta’s businesses adds a new twist to the debacle stemming from the March implosion of Greensill Capital, the finance firm at the centre of the three-way relationship.

Investigations, lawsuits

The UK Serious Fraud Office is now investigating Gupta’s group of companies for suspected fraud, including in its financing deals with Greensill, according to a May 14 statement. Credit Suisse has sued to force Gupta’s Liberty Commodities into insolvency and has since shut the funds that made the loans and launched an internal investigation. Investors are staring at losses as the bank confronts embarrassing lawsuits.

“We are currently focusing our efforts on recovering our investors’ money,” Will Bowen, a spokesperson for Credit Suisse in London, said in an e-mailed statement, adding that the bank’s internal probe will focus on “all of the issues” linked to the funds. “We are committed to learning the lessons and will share the relevant lessons learnt at the appropriate time.”

Andrew Mitchell, a spokesperson for the Gupta Family Group Alliance, or GFG Alliance, a collective of businesses linked to Gupta including Liberty Commodities, denied any wrongdoing. The Greensill saga represents just one of the two disasters that rocked Credit Suisse in the first half of 2021. Since Greensill began unravelling, the bank has announced a $5.5bn hit from the blow-up at Archegos Capital Management.

Apologies

Former chair Urs Rohner apologised to shareholders and his successor, Antonio Horta-Osorio, who arrived at the end of April, has promised a sweeping strategy review.

CEO Thomas Gottstein, who was head of the division that oversaw trade finance, was not aware of the internal concerns about Gupta that had prompted the bank to cut him off, according to a person familiar with the matter.

Employees at the trade-finance unit, which lends money for the buying and selling of commodities, cut ties with Gupta in 2016 after becoming sceptical towards his Liberty Commodities, the people said. They distrusted the documents the company provided, triggering doubts about its transactions, they said. In one example reported by Bloomberg, the company had presented another bank with what seemed to be duplicate shipping receipts. A spokesperson for Gupta has denied any wrongdoing.

Banking ties

Liberty Commodities pledged assets to Credit Suisse as security for borrowings in 2013 but by early 2016 all such commitments had been extinguished indicating that the financing relationship had ceased, UK Companies House filings show. And while Gupta’s company listed the Swiss bank as one of its lenders in its 2014 annual report, it did not in the next year’s report, which is dated May 2016, according to the filings.

Their counterparts at other banks, including Macquarie Group and Sberbank, halted trading with Liberty Commodities around the same time because of similar concerns; Goldman Sachs Group also stopped in 2016, Bloomberg has reported.

Nevertheless, executives at Credit Suisse’s asset-management division — which creates investment products for clients and charges a fee for overseeing them — began arranging a suite of funds focused on supply-chain finance in 2017. The entities bought securitised loans packaged by Greensill, a firm created by Australian businessman Lex Greensill. Much of the debts were linked to Gupta’s businesses.

Warnings

Officials at the commodity trade-finance unit were concerned when they found out about the funds’ links to Gupta and took their fears to Thomas Grotzer, general counsel for the bank’s Swiss division. They also warned Luc Mathys and Lukas Haas, the bankers who helped oversee the trades at the asset-management unit.

Grotzer was promoted last month to interim global head of compliance at Credit Suisse. He did not respond to requests for comment. Mathys, head of fixed-income at the asset-management division, and Haas, a portfolio manager, were put on temporary leave in March. Neither responded to requests for comment.

The bank pushed ahead with the funds and marketed them to investors as being made up of short-term debt secured on invoices, assets considered so safe that Credit Suisse gave the largest vehicle its lowest rating for risk. Yet part of the loans were linked to mere possible future revenues.

Other parts of the bank continued working with Gupta as well. Credit Suisse’s investment bankers were due to lead an initial public offering for Liberty’s US steel arm, which was ultimately pulled, according to a statement from the company. Gupta also announced that the Swiss bank would finance his planned acquisition of Thyssenkrupp’s steel unit, which fell apart earlier this year.

Credit Suisse has so far recouped about $5.9bn of the $10bn in these supply-chain funds, but it remains unclear how much will be returned ultimately to investors. Loans to Gupta’s businesses are among a batch of debts that are the “principal sources of valuation uncertainty,” the bank said earlier this month.

Liberty Commodities’s external legal advisers investigated “alleged rumours concerning the paperwork” it used in 2019, according to Mitchell, the spokesperson for GFG Alliance. They found no evidence to substantiate the rumours, nor was the company “ever subject to further complaints or proceedings,” he said.

“LCL has ongoing banking relationships with separate financial institutions,” Mitchell said, referring to Liberty Commodities. “The trade-finance market has been hugely challenging for all but the very largest commodities traders in recent years. Nevertheless, no financial institution has been left out of pocket as a result of lending money to LCL. On the contrary, they have received substantial commercial returns.”

Bloomberg News. More stories like this are available on bloomberg.com

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