In April 2020, I published a story in the Dow Jones publication Financial News. The focus was on a strange new twist in the way the Credit Suisse–Greensill funds were operating.
Credit Suisse published monthly summary reports about the funds on their website and distributed them to investors in the fund too. They were emphatically bullish about the funds and didn’t say exactly how much they loaned to each borrower. But they did say what proportion of the fund was loaned to each of the top ten clients. It was a straightforward task to reverse-engineer a calculation that showed how much in dollars each of the top ten borrowers had received. I kept tabs on them regularly for any unexpected shifts.
That month, there was a surprising new development. Suddenly, companies that were backed by the SoftBank Vision Fund popped up in the list of top ten clients. I knew Greensill was effectively making all the decisions about who the funds loaned to. Coupled with that knowledge, this new revelation meant Greensill was directing those funds to companies that, like Greensill itself, counted the giant Japanese firm as a major investor.
There were four Vision Fund companies that stood out.
OYO Hospitality is an Indian hotel company that operates budget accommodation around the world. SoftBank had invested more than $1 billion into the company, but in early 2020 OYO was struggling. The global Covid-19 pandemic had already started to hurt the travel and tourism sector. Even before that, a rapid expansion plan, encouraged by SoftBank, had been accompanied by widening annual losses of several hundred million dollars. The company had begun laying off staff and scaling back its ambitions.
Fair Financial was in a similar position. Fair had started out offering subscriptions to customers who paid a fee to drive used cars. Along the way SoftBank had ploughed more than $300 million into the company, becoming a major shareholder with influence over the direction of the company. Fair had morphed into a broader car leasing business, including a major deal to lease cars to Uber drivers. According to Bloomberg News, the Vision Fund’s Colin Fan had led the investment and told Fair’s executives that the biggest risk to the company was if it did not grow fast enough. That ambition too had proved wrongheaded. Fair began rapidly cutting costs, reducing staff numbers and exiting unprofitable deals such as the one with Uber. Senior management ranks were shuffled and shuffled again as the company hurtled into financial difficulties. The CEO stepped down after a round of layoffs. The company allegedly broke the lease on its office, failed to pay its $500,000 security deposit, and was sued by its landlord. Even as Fair borrowed from the Credit Suisse–Greensill funds, it was facing a major financial headache. It wasn’t quite there in early 2020, but by the end of the year, Fair was deep in trouble. By the middle of 2021, it was potentially heading for insolvency.
Smart window manufacturer View Inc. had received an investment of about $1.1 billion from the Vision Fund in 2018. The Californian company makes ‘dynamic glass’ that is meant to reduce heat, glare and eyestrain. View too had been hit by the pandemic, which had slowed the US construction industry. And it was burdened by huge debts. The company was laying off staff and generating hundreds of millions of dollars in losses. View had received more than $80 million in financing from the Credit Suisse funds, loans that it didn’t have to pay back for a year. That was odd. Most of the financing in the funds was for around ninety days, and hardly any loans were for more than six months. (In March 2021, View went public through a so-called SPAC – special purpose acquisition company – raising about $800 million. The move allowed it to restructure its debts, although its share price fell by about 40 per cent over the next six months as questions about its long-term profitability hung over the company.)
The other Vision Fund company that got a Credit Suisse–Greensill loan was Chinese online auto sales firm Chehaoduo. The Vision Fund had invested $1.5 billion into the Beijing-based firm in 2019. It too was struggling with the fallout from the pandemic, which had put a dent in Chinese auto sales. My colleagues at The Wall Street Journal had also written previously that some investors in the Vision Fund objected to the decision to put their money into Chehaoduo, which had been accused of fraud by a rival Chinese firm. A spokeswoman for Chehaoduo had denied the accusations, while SoftBank’s leaders said they had conducted their own due diligence and found the accusations groundless. The Credit Suisse documents referred to it under the name Guazi, which is the name of Chehaoduo’s online car-trading platform. It wasn’t uncommon for these documents, which were sent out to investors, to include information that was not quite right, out of date, or just flat out wrong.
In total, these four companies – OYO, Fair, View and Chehaoduo – had received as much as 15 per cent of the loans provided by the biggest of the Credit Suisse–Greensill funds. That worked out at about $750 million – all of it Credit Suisse’s clients’ money, and all of it loaned to Vision Fund companies that were, to a varying degree, facing financial difficulties of their own. None of the four companies had been among the big borrowers from the funds a few months earlier, indicating that financing to them picked up after SoftBank bought into Greensill. Some of the deals were hugely lucrative for Greensill too. By the fourth quarter of 2019, Greensill was counting on the four Vision Fund companies to deliver about $90 million in revenue, about a fifth of the total revenue for the year. The whole arrangement appeared to represent a huge conflict of interest. I called some investment and governance experts I knew and they were all in agreement: it was potentially very problematic, and possibly riddled with conflicts, especially so if investors in the funds were blind to what was going on.
I checked through all the documentation from the funds that I could get my hands on, to see whether Credit Suisse or Greensill disclosed to investors in the funds the ties between Greensill, the Vision Fund, and four of the biggest obligors. There was nothing.
When I called Credit Suisse, it was unclear to me that anyone there even knew about the Vision Fund loans. Instead, a spokesperson for the bank sent me a bland, on-the-record statement, by email, that said the funds are ‘highly regulated and [have] a thorough investment and due diligence process in place’ and that everything was ‘in line with the prospectus, investment guidelines and marketing material.’
Greensill was equally unhelpful. I got another email, this time apparently highlighting the SoftBank connection as a positive: ‘The investment from and relationship with SoftBank has provided Greensill access to numerous new relationships, from across the Vision Fund and externally, for us to evaluate.’
It seemed like a vague reference to something Masayoshi Son had said about the ‘Cluster of No. 1’ strategy. SoftBank’s website explains that SoftBank-backed companies ‘are encouraged to form synergies to evolve and grow together based on capital ties and a shared vision while making decisions independently.’
The story we published in Financial News had raised a serious red flag about the multifaceted role of SoftBank in the Greensill funds. It also made another point. The Credit Suisse–Greensill funds had ballooned in the past couple of years – from about $2 billion in aggregate at the end of 2018 to more than four times that much in early 2020. But that trend was now in a dramatic and swift reversal, with investors pulling billions of dollars out of the funds in a matter of days – part of a broad market upheaval caused by the pandemic.
The same Credit Suisse spokesperson emailed me: ‘During this unseen market correction, the fixed income asset class has generally seen record outflows. Despite the adverse markets, the supply chain finance funds of Credit Suisse Asset Management have delivered a solid performance and are outperforming the [sic] peers. All redemptions have been met.’
In fact, the wave of redemptions was much more significant than that. Lex knew that not all the loans were short term, and that some of them might not be recoverable at all. If redemptions continued to grow, it was possible that Credit Suisse would not be able to pay back investors who demanded their cash. That would be catastrophic, revealing that the funds were not as liquid or safe as many investors had been led to expect. The whole house of cards would come crashing down, and fast.
I didn’t know this till later, but Lex was as panicked as the markets. Weeks before my story about the potential conflicts of interest, he had called Masayoshi Son in Tokyo from his chauffeur-driven car on a rainy day in London. Lex pleaded for his mentor’s help. He blamed the impact of Covid-19 and the markets. It was critical. If SoftBank could put $2.5 billion into the Credit Suisse funds, it would immediately stop the bleeding. From the outside, no one would know where the money had come from, and such a major inflow of investment money would send a signal that the funds continued to be stable and reliable. Lex also knew that getting the cash was potentially existential for Greensill.
It was a huge ask. Masa and SoftBank had a well-deserved reputation for making big, multibillion-dollar bets, and fast. But even for Masa, $2.5 billion was a high-stakes gamble. On the other hand, if the Japanese investor didn’t put the money in, the $1.4 billion that SoftBank’s Vision Fund had already invested in Greensill could be at risk.
Masa offered $1.5 billion – less than Lex wanted but a staggering sum, nonetheless. It would have to do. The money came with terms attached: SoftBank got an extra stake in Greensill, of about 3 per cent of the company’s shares. Greensill and Credit Suisse also agreed a side deal that the funds would only invest in loans brokered by Greensill. In practice this was the case anyway. It was a formalization of a built-in conflict in the way the funds were run.
I didn’t uncover all these details until months later. But in June, Robert Smith and Arash Massoudi, journalists at the Financial Times, reported that SoftBank had poured more than $500 million into the funds. Though I believe they underestimated the true size of the investment, the story was the first to report the additional twist.
The pressure on the funds was becoming too intense for Credit Suisse to simply keep quiet. Something would have to give. In June, the bank’s senior management launched an investigation into the funds.
By then, the bank was under new stewardship. Thiam, the charismatic French-Ivorian, had been pushed out in February after a nasty boardroom standoff. Inside the insular world of Swiss banking, he had never really been accepted. The previous year, Thiam walked out of a birthday party for the bank’s chairman, Urs Rohner, after a black performer dressed as a janitor danced on stage and some bank executives donned Afro wigs.
Iqbal Khan, Credit Suisse’s wealth management chief, had also fallen out with Thiam and decided to leave the bank for its crosstown rival UBS. Khan and Thiam had clashed frequently, with Thiam trying to curb the wealth management unit’s long-held appetite for selling riskier investments to its clients. But Khan was popular inside the bank and his exit had damaged Thiam. Then it emerged that one of Thiam’s top lieutenants had hired a corporate espionage company to follow and spy on Khan after his departure. In the worst incident, Khan and his wife were allegedly engaged in a car chase through the streets of Zurich before a physical altercation between the banker and the spooks. Thiam pleaded his ignorance of the spying debacle, and he was formally cleared of any involvement by an external law firm. But he was pushed out of the bank anyway.
His replacement, Thomas Gottstein, was a Swiss national who had represented his country at golf and had worked for Credit Suisse for twenty years. Over the next few months, it would be Gottstein who would have to deal with the crisis that emerged at Greensill.
The new CEO was quickly facing several crises all at once.
Among his biggest problems was how to untangle a mess at Luckin Coffee, a Chinese challenger to Starbucks. Credit Suisse had touted Luckin, and its founder Lu Zhengyao, as a poster child for its strategy of banking wealthy entrepreneurs. The Swiss bank had underwritten Luckin’s New York IPO in 2019 and sold hundreds of millions of dollars in bonds for the Chinese company. But in April 2020, the coffee company imploded after revelations that its top management had made up $310 million in sales. It was an embarrassing – and costly – black eye for the bank.
There were other blows too. The bank’s reputation had been called into question in 2019 after it had helped finance a controversial bond sale for Wirecard AG, a German payments company that collapsed amid fraud allegations. And, later in 2020, Credit Suisse announced it would take a hit of at least $450 million on a stake it had bought in hedge fund York Capital Management, which was winding down after being pummelled in the markets.
The Greensill–SoftBank issue might have seemed the least of Gottstein’s worries at that point. It wasn’t the first time the funds had come into the crosshairs of the bank’s top management. In the wake of the crisis at GAM, there had been a discussion at Credit Suisse about whether their own Greensill funds needed a closer look. The discussions went as high as Lara Warner, the bank’s head of compliance. Warner was seen by some colleagues as a stickler for the rules, although she was also known for trying to find ways to come up with commercially friendly solutions. Credit Suisse’s fund managers in Zurich were very defensive about the GAM questions. The Greensill funds were growing and making tens of millions in management fees. The fund managers – the team that included Mathys and Haas – pushed back hard, belittling the concerns from compliance and pointing out that the insurance coverage meant the funds were fully protected against any downside.
In the end, the bank’s managers, including Warner, decided they had not uncovered enough to make any changes to the ways the funds were run.
But the questions didn’t go away. In 2019, some bankers in the credit-structuring team had come across the Greensill loans too. They sent messages to the bank’s reputational risk committee, alerting it to the possibility of some wider problem, suggesting that Greensill was taking shortcuts in documentation and the way it was running its loan book. Again, the questions went nowhere. Some of the bank’s staff who had spoken up felt that there was no point. The funds had grown rapidly. Everyone was making money. And there was still the potential Greensill IPO to think about. No one wanted to hear any negativity or scepticism.
My own regular questions about the funds – as well as those of other journalists – were also escalated from the bank’s media relations team to people further up the hierarchy. Ultimately though, the inquiries always hit a senior executive, someone like Warner, and the questions would stop. Warner was part of Thiam’s top ranks and had been expected to follow him out of the door. Instead, Gottstein promoted her to chief risk and compliance officer.
When the revelations about SoftBank’s multiple roles in the Greensill funds broke, the bank’s senior executives initially talked about a wide-ranging review of the funds. There were many questions. How were they run? What did they invest in? Should they do more due diligence on Greensill?
The bank’s investigators reviewed phone records and emails from the key staff working on the funds, Mathys and Haas. There was nothing incriminating. Nothing like the free flights and tickets to Buckingham Palace that GAM’s Haywood had taken.
Top bank executives were also concerned that the portfolio managers had struck the separate side agreement, not disclosed to investors in the funds, which said they would only invest in supply chain assets from Greensill. In theory, the funds could previously invest with assets sourced elsewhere, but this agreement had formalized Greensill’s exclusivity, and would have ensured a steady stream of business for Greensill.
At Greensill, meanwhile, there was little to indicate that a serious investigation was underway. Lex told his board and top executives that it was a Credit Suisse issue – they were happy with the funds’ performances and happy with Greensill’s role. The questions were all about their own internal procedures. It was the same playbook he’d employed when the GAM crisis had blown up. Nothing to see here. Someone else’s problem. Many of those close to him were inclined to believe Lex. He had got out of bigger scrapes, after all.
In late July, Credit Suisse sent a letter to investors in the funds. The bank said that it was committing to taking further steps to protect investors – though it never explained what those were. It also said the funds were performing well, and that no investors had incurred losses because of the matters under investigation. To me, this only showed they still didn’t understand the way the funds worked. So long as investor money kept coming in, then Lex could continue rolling bad loans over, and writing up whatever performance he wanted.
Meanwhile, staff working for Eric Varvel, the bank’s head of asset management who had once said he would help Lex fund a new capital for Indonesia, were assigned to investigate individual obligors beyond the SoftBank Vision Fund borrowers. That would have meant looking at the many Sanjeev Gupta GFG companies or a host of other odd loans. An investigation like that would have uncovered some of the billions of dollars of loans that might never be paid back. It might even have unearthed major problems at Greensill Bank and with Greensill’s biggest insurance partner. But nothing substantial ever came of it. The wide-ranging review of the funds that the bank’s senior management had talked about in June faded into the rear-view mirror as Greensill headed straight towards a cliff.
IT TURNED OUT that SoftBank wasn’t the only Greensill shareholder that had got itself entangled in Greensill’s Credit Suisse funds. In 2019, General Atlantic had been seeking financing for an investment it was making into a joint venture with German exchange operator Deutsche Börse. The private equity firm needed about $350 million, which would be secured against its stake in the deal, and the company put out a request to lenders to see who could come up with the best deal. There were four or five bidders. In the end it came down to Goldman Sachs and Greensill, which were offering similar terms. GA decided to give it to Greensill. An internal Greensill document said the deal ‘provides Greensill with the opportunity to strengthen its relationship with a significant sponsor while achieving a strong return.’
Greensill parked part of the loan in Greensill Bank. There are limits on how much banks can lend to their own investors. So the rest, a little under $100 million, sat in the Credit Suisse funds.
ALTHOUGH CREDIT SUISSE’S investigation had fallen short, it was not without an impact. The probe had very publicly shone a light on Credit Suisse’s relationship with both Greensill and its biggest investor, the SoftBank Vision Fund. It was another blemish on Greensill’s reputation, at least among those who were paying attention – potential corporate clients and insurance partners, for instance. Eventually, Credit Suisse’s fund managers asked that Greensill cut the exposure to GFG. At the end of 2020, about 13 per cent of the funds were invested in GFG loans and, Lex told his senior staff, Credit Suisse wanted that down to about 9 per cent as soon as possible, with a further reduction to 5 per cent by the end of June 2021. The bank’s demands meant Lex would have to find somewhere else to put another billion dollars of GFG loans at some point.