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Credit Suisse is replacing Varvel and stopping bonuses when clients smoke

(Bloomberg) – Credit Suisse Group AG sought to contain the mounting fallout from the collapse of Greensill Capital as it recognized a group of now frozen $ 10 billion funds that the bank announced for their security When the Swiss bank investigated the collapse of short-term debt funds, it downgraded one of its top managers, paused for some premiums, and separated the asset management unit at the center of the scandal from the much more valuable asset unit. Chief Executive Officer Thomas Gottstein, who has largely shied away from making profound changes since his takeover over a year ago, is confronted with looming legal disputes and demands from regulators to hold more capital, as the crisis raises questions about risk management and risk controls poses. Clients ranging from wealthy individuals in the Middle East to Swiss pension funds are upset about potential investment losses and threaten important relationships that go well beyond the wealth management business, Bank said in its annual report on Thursday. “The portfolio manager has been informed that certain of the underlying debt securities of the funds will not be repaid when due.” The bank has returned approximately $ 3.1 billion to investors to date and has an additional $ 1.25 billion in cash for everyone four funds Credit Suisse shares rose 3.1% at 4:18 pm in Zurich as bank shares rose across the board. To date, the bank had lost more than 8% since the funds freeze on March 1. As part of the changes announced on Thursday, Eric Varvel, who oversaw US asset management, will be replaced next month by Ulrich Koerner, who was until recently head of the fund unit at rival UBS Group AG. The payment and exercisability of variable remuneration for a number of executives involved in the Greensill debacle – including the board of directors – is suspended to allow the bank to reconsider. Asset management will become a separate unit, which Koerner will report directly to CEO Gottstein. Varvel will work with Koerner in the coming months and then focus on his other roles as CEO of the bank’s US holding company and chairman of the investment bank. The changes include two frenzied weeks during which the bank launched an internal investigation, brought in outside help to answer questions from regulators, and tried to reassure investors by returning cash portions of the funds. In most cases when an asset manager must liquidate a fund, losses will be borne by the investors. However, the case is not so clear-cut for Credit Suisse, which has sold the products across business areas. The funds were used to invest money for retirees, the bank made them available to corporate treasurers and insurers, and offered them to wealthy families as an alternative to cash. Credit Suisse sold a disproportionate amount of the funds – more than $ 1 billion – through its Middle East private banking arm, according to those familiar with the matter. It was part of a push to move rich people from the Middle East, who often hold large sums of money in Switzerland, from costly cash deposits to chargeable investments. Some of the key clients of the Swiss Bank in the Gulf have also taken out loans against their holdings in the Return Enhancement Fund, people requested anonymity to discuss internal information. These clients now face the dual problem of potential losses on Greensill affiliated funds and may require more collateral on their loans. Because of this situation, Credit Suisse bankers in the region have been trying to save customer relationships without being able to answer key questions about the extent of possible losses and who will ultimately pay for them. In Switzerland, where Credit Suisse is a leading provider of investment management services for retirees, at least one retirement plan has put pressure on the bank and local politicians to make sure they are complete, so someone familiar with the matter. The pension asks why the bank didn’t take action despite warning signs, the person said. A spokesman for Credit Suisse declined to comment. Varvel’s replacement marks the biggest shake to date following the Greensill debacle after the bank temporarily removed a number of sub-managers while the investigation continues. As a Credit Suisse veteran of almost three decades, he took over the management of asset management in 2016 and pursued a “barbell strategy” in which he focused on alternative investments on the one hand and cheaper passive instruments on the other recently in the spotlight for the wrong reasons. Setbacks include issues with Greensill-affiliated funds, a $ 450 million impairment loss on a stake in York Capital Management, the closure of two reinsurers backed by the unit’s insurance-linked securities strategy, and a fee of 24 million francs The funds affiliated with Greensill initially invested in loans backed by bills that were paid in a few weeks or months, which made them relatively safe. But as they grew into a $ 10 billion strategy, they got lost on that pitch and much of the money was borrowed against expected future bills for sales that were merely predicted, Bloomberg reported. Credit Suisse rated the flagship fund the safest on a scale of one to seven, in part because many of the assets were insured. A high-octane version of the fund that was not insured still received the second safest rating in investor documents. Credit Suisse decided to freeze them after a major asset insurer refused to continue coverage. Some investors are now threatening legal options, said Credit Suisse. Edouard Fremault, a partner at Deminor in Brussels, a company that funds litigation related to investment recovery, said his company has already been approached by around 10 investors in the fund. The investors are private and corporate clients of Credit Suisse in Great Britain and Switzerland, according to a well-known person. Credit Suisse warned earlier this week that it could face a financial blow related to Greensill. Questions also remain related to the bank’s decision to expand its exposure to the former billionaire financier by providing a $ 140 million bridging loan last fall and whether Chief Risk Officer Lara Warner played a key role. The bank said it only learned of Greensill’s problems securing insurance coverage for its supply chain finance loans on Feb.22, about a week before Credit Suisse took out the funds. (Adds stocks in paragraph six.) For more articles like this, visit us at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP