Credit Suisse securitizes a portfolio of loans related to yachts and private jets to the richest customers through the unusual use of derivatives to unload risks associated with lending to super-rich oligarchs and entrepreneurs.
The Swiss lender, which suffered a difficult year marked by a recurring scandal, quietly sold part of the risk associated with $ 2 billion in its ultra-high net worth client loans at the end of 2021.
The securitization of the loan portfolio of tycoons and oligarchs, backed by their “aircraft, yachts, real estate and / or financial assets”, was done by a bank unit that had previously been plagued by sanctions issues.
A presentation by investors on the deal, seen by the Financial Times, explains that one of the main goals of this division is “to create a positive impression of the CS brand by financing the principal’s favorite business instruments (business plane) and luxury toys (yachts). ”
While banks regularly engage in these so-called “significant risk transfer” transactions to reduce the capital they hold against loans, derivative transactions typically involve stable corporate or mortgage portfolios that form the bread and butter of bank lending.
The nature of the underlying collateral meant that Credit Suisse had to offer a staggering interest rate of over 11 percent to attract a handful of hedge funds in the $ 80 million deal, an indication of the price the bank is willing to pay to improve its capital. position without using public stock markets.
The investor’s presentation of the deal also lifted the cover of the Swiss bank’s private banking, detailing some of the top-secret business secrets of its international wealth management franchise.
One slide reveals that in 2017 and 2018, Credit Suisse suffered 12 defaults on its yacht and aircraft loans, a third of which were “related to US sanctions against Russian oligarchs.” At the time, the press showed that Oleg Deripaska and the brothers Arkady and Boris Rotenberg should terminate the contracts for the lease of private jets with the bank.
The same slide explains the increase in Credit Suisse’s mortgage defaults in those years, as some customers were “not particularly happy with the bank” as it withdrew from certain markets.
Although Credit Suisse has long provided loans to finance the purchase of private jets for billionaires, its raid on yacht financing has been relatively recent. The slides show that she started lending seriously against yachts in 2014, but quickly expanded her business, with unpaid loans exceeding $ 1 billion last year.
The portfolio also includes loans against stocks and bonds of wealthy clients, as well as their shares in private equity and hedge funds. The slides show that in the latter, the bank is sometimes willing to offer 80% leverage on its positions, which it admits is “above standard”.
The presentation adds that “credit catalysts” for these clients may include “change in personal situation”, such as “divorce”.
The $ 80 million banknotes are listed on the Normandy International Stock Exchange, a stock that gained notoriety for its role in the Neil Woodford scandal but is often the preferred location for niche debt deals.
Credit Suisse declined to comment.