Credit Suisse Probes Funds Linked To SoftBank ‘Circular Financing’ Scheme

Credit Suisse is apparently moving to ensure that a potentially lucrative new business doesn’t become forever besmirched by its association with SoftBank, the Japanese telecoms conglomerate with a venture-capital arm attached that has seen bets on more than a dozen companies go sour since the collapse of the WeWork IPO, which helped destroy the reputations of both the firm and its founder and current chairman Masayoshi Son.

Last week, the FT reported that SoftBank was using a couple of Credit Suisse funds focused on a new business line: so-called supply-chain finance. But rather than simply buying accounts payables for a diverse group of companies, these funds – which happened to be advised by the Softbank-backed Greensill Capital – essentially served as a low-key route for SoftBank to pour more capital into its struggling investments. The FT we shared last week found 4 of the funds’ top 10 exposure were Softbank-backed startups.

Greensill, for what it’s worth, employs former British PM David Cameron as an advisor.

Now, Bloomberg reports that CS is investigating these funds, and Greensill’s relationship with SoftBank.

Credit Suisse Group AG has started a probe into funds that invest in loans arranged by billionaire financier Lex Greensill and are backed by Masayoshi Son’s SoftBank Vision Fund.

Switzerland’s second-largest bank is looking into its supply-chain finance funds, which hold short-term corporate loans and finance a number of startups backed by the Vision Fund, according to a person familiar with the matter, who asked not to be identified because the information is private. The loans are sourced by Greensill Capital, which is also backed by Softbank.

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Former Morgan Stanley banker Greensill partnered with Credit Suisse in 2017 to create bespoke investment funds that bought corporate invoices. The idea is for such funds to buy loans — arranged by middlemen such as Greensill — so companies can pay their bills early while boosting cash flow. The business accelerated last year when the SoftBank Vision Fund invested almost $1.5 billion in Greensill Capital.

Four of the 10 largest bets of Credit Suisse’s main supply-chain finance fund were Vision Fund companies at the end of March, including Oyo and Fair, making up 15% of its $5.2 billion assets, the FT wrote.

For those who aren’t familiar with the new niche industry of supply chain finance (it seems some more-savvy asset managers, including fellow Swiss institution GAM, are marshaling a new universe of ‘alternatives’ to market into the next boom), Bloomberg explains:

Supply-chain finance has been a fast-growing niche area for Credit Suisse, which managed 437.9 billion Swiss francs ($454 billion) at the end of last year in its asset management unit. Assets in the bank supply-chain funds rose last year as Greensill sought companies to finance before packaging the short-term loans into bundles and selling them to institutional investors.

While the funds quickly drew billions in investment since inception, they have been hit by outflows throughout the pandemic crisis. Credit Suisse clients pulled $1.6 billion from the funds earlier this year, as they rushed to free up cash in the market rout spurred by the spread of coronavirus, Bloomberg reported in April.

Plus, as some of its former bankers begin to hold the company at arms length, allowing the Japanese conglomerate to get away with this kind of skullduggery is not longer offset by the increased goodwill from a (soon-to-be-former) national champion.