Credit Suisse CEO Tidjane Thiam. Picture: REUTERS
Credit Suisse CEO Tidjane Thiam. Picture: REUTERS

New York — A US judge has rejected Credit Suisse Group’s bid to dismiss a lawsuit accusing the Swiss bank of defrauding shareholders about its risk appetite and risk appetite before taking $1bn of write-downs on souring debt.

The decision by US district judge Lorna Schofield in Manhattan was made public on Wednesday.

Schofield said investors who lost money in Credit Suisse’s American depositary receipts could pursue claims that the bank, CEO Tidjane Thiam and other defendants intended to mislead them, by touting its “comprehensive” risk controls and “binding” limits on its exposure to risky and illiquid debt.

Credit Suisse took two write-downs in early 2016 on $4.3bn of collateralised loan obligations and distressed debt, contributing to its first full-year loss since the 2008 global financial crisis.

The bank’s share price fell 11% after news of the first write-down. Other defendants include CFO David Mathers, and Thiam’s predecessor, Brady Dougan.

Credit Suisse had no immediate comment. A lawyer for the defendants did not immediately respond to requests for comment.

The lead plaintiffs are four pension and retirement plans in suburbs of New York City and Chicago, and in Birmingham, Alabama. Their lawyers did not immediately respond to requests for comment.

Since becoming CEO in 2015, Thiam has repositioned Credit Suisse as a bank for ultra-wealthy and entrepreneurial customers, while shrinking its investment bank.

Though Schofield dismissed some claims in the lawsuit, she cited Thiam’s own statements about the bank’s rising risk appetite in explaining why the case should proceed.

“Thiam himself stated that continually raising the internal risk limits led to larger exposures to illiquid collateralised loan obligations and distressed debt investments and resulted in the write-downs,” Schofield wrote. “Thiam stated to the Wall Street Journal, ‘A limit that keeps moving is not a limit’.”

Schofield said statements such as these could suggest that investors “were lulled into believing that the risk levels were contained and acceptable”.

The defendants have said there was no fraud or intent to defraud, and that prior courts found no liability for similar actions by other banks and corporate officers.

Reuters