Finance

Credit Suisse asset management spinoff would do little to ease Greensill ‘reputational damage’

Credit Suisse’s hint that it may spin off the bank’s asset management business in the wake of the Greensill Capital scandal will do little to limit the reputational fallout for the Swiss lender.

That’s according to analysts including Morningstar’s Johann Scholtz.

“The reputational damage has been done already,” said Scholtz, who said it would be “difficult, if not impossible” to ring fence the fallout from Greensill to the asset management business, given the outstanding loan that needs to be paid back to the bank.

Credit Suisse declined to comment.

Earlier this month Credit Suisse wound up four funds with $10bn linked to Greensill, which contributed to the supply chain finance firm falling into administration on 8 March. More than 1,000 angry investors trapped in the Credit Suisse funds are preparing to take legal action, according to the Financial Times. Just over $3bn has been returned to investors in the funds.

READ Credit Suisse asset management chief steps back amid Greensill fallout

The bank has said it faces charges linked to a $140m loan the bank made to Greensill, of which $50m has been paid back. It is also considering clawing back bonuses for senior executives as a result of the fallout.

“It will become difficult for Credit Suisse get out of the tight spot legally by just spinning off asset management,” said Daniel Regli, an analyst with Octavian. “It will probably become difficult to find investors into or buyers of a separated [asset management arm] as long as the Greensill issue is not resolved. Credit Suisse would potentially have to sell it at a discount, which is not in the best interest of Credit Suisse.”

Meanwhile Adam Terelak, an analyst with Mediobanca, said while it’s unlikely Credit Suisse would sell the asset management business, spinning it into a separate entity could see it listed.

This could help isolate the asset manager from the bank as it would require separate oversight, he said.

It would also allow employees of the asset manager to be paid in schemes linked to that entity, rather than those of Credit Suisse.

“That helps to isolate the fallout from incidents,” said Terelak. “But there is the reputational damage. With the one bank model, in some cases the risk management and oversight can be lost. The fact this has come out of the asset manager is what is interesting.”

Chief executive Thomas Gottstein, who took over as Credit Suisse CEO in February last year, told Bloomberg Television on 22 March that creating a separate asset management entity was “potentially part of the plan”.

READ Credit Suisse slashes bonuses, considers clawbacks for top brass amid Greensill fallout

He said the ongoing Greensill supply chain finance crisis which has embroiled its asset management unit “is a distraction and something that we are working through now”.

Credit Suisse has already taken drastic steps to address the fallout from Greensill, replacing its veteran head of asset management Eric Varvel with former UBS executive Ulrich Körner.

“What spinning out the asset management business could mean is that Credit Suisse itself will be in a position to report cleaner results, but the reality is that it has not been able to report clean results unmarred by some issue or other for more than a decade,” said Scholtz. “A long, drawn out legal battle will do further damage.”

To contact the author of this story with feedback or news, email David Ricketts

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