Credit Suisse replaces exec, suspends bonuses after Greensill scandal

Zurich

CREDIT Suisse Group AG ousted asset management head Eric Varvel from his position and suspended bonuses for senior executives as the bank seeks to contain the widening fallout from the Greensill Capital scandal.

Mr Varvel is the highest-ranking executive so far to be removed over the Greensill funds, and will be replaced by ex-UBS Group AG asset management head Ulrich Koerner. He will take over on April 1, when asset management will be split from international wealth management and run separately, the bank said on Thursday.

Credit Suisse is struggling to move on from the implosion of one-time billionaire Lex Greensill's supply chain finance firm after the Swiss bank found itself at the centre of one of the biggest corporate failures in recent years. The lender was forced to suspend funds it ran that invested in Greensill's notes when it became apparent that it could no longer value them, kicking off a chain of events that culminated in the collapse of the financier's business.

Credit Suisse chief executive officer Thomas Gottstein, who already contended with a series of past missteps and losses in his first year, is facing questions about controls and risk management, not least because he ordered a review of the funds just last year that subsequently failed to prevent their collapse. The Swiss bank is also grappling with how the funds were marketed to investors and how much - ultimately - they will get back.

Certain notes underlying the funds will not be repaid when they fall due and there is "considerable uncertainty" regarding the valuation of a significant part of the remaining assets, the bank said on Thursday. Credit Suisse has paid out about US$3.1 billion so far to investors and has said it has an additional US$1.25 billion in cash across the four funds.

Mr Varvel will work alongside Mr Koerner in the coming months and then focus on his other roles as CEO of Credit Suisse Holdings (USA) and chairman of the Investment Bank. His stepping aside - and the move to separate asset management from wealth - caps two frenzied weeks in which Credit Suisse also launched an internal probe into the collapse, brought in outside help to deal with regulators' queries and sought to calm investors by returning cash portions of the funds and replacing lower-ranking managers.

Mr Gottstein, speaking at a Morgan Stanley conference on Tuesday, said that having asset management as a sub-division of the much larger business catering to wealth and high net-worth individuals is "something that I always had some doubts about".

As it weighs the fallout - and who takes the ultimate blame for Greensill - the bank said it is suspending the bonuses of some top managers and will weigh clawbacks, up to and including the lender's top leadership.

Credit Suisse earlier this week warned it may take a financial hit after it was forced to freeze US$10 billion of supply chain finance funds that it ran with Greensill and said it has so far recovered only about US$50 million of a US$140 million loan to the firm.

Mr Varvel has been with Credit Suisse for nearly three decades, and ran the Swiss bank's asset management arm since 2016. The business developed "extremely well" between 2015 and 2019 in terms of assets and profit under his leadership, Mr Gottstein said in September, when the bank announced that it was reviewing the business' strategy.

The unit had grown its assets by almost 40 per cent from the end of 2014. It pursued a "barbell strategy" of focusing on alternative investments such as private debt, private equity and real estate on the one hand, and cheaper, passive instruments on the other. With 440 billion francs (S$637.9 billion) under management now, it remains on the small side in an industry that's facing pressure to consolidate.

Despite good performance, the unit has been in the spotlight for the wrong reasons. On top of the latest issues with the Greensill-linked funds, setbacks include a US$450 million impairment in a stake in York Capital Management, the closure of two re-insurers backed by the unit's insurance-linked securities strategy, and a 24 million franc charge on seed capital for a real estate vehicle. BLOOMBERG