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Michigan Pension Fund Sues Credit Suisse Over Risk Exposure

The Swiss bank is accused of misleading investors after it lost billions when Greensill and Archegos collapsed.
By Michael Katz


The City of St. Clair Shores Police and Fire Retirement System is suing Credit Suisse Group for allegedly misleading investors and mismanaging risk exposure to “high-risk clients” such as Greensill Capital and Archegos Capital Management, both of which collapsed last month.

The Swiss bank lost billions of dollars when UK-based financial services firm Greensill and US-based family office investment fund Archegos went under in March.

The lawsuit alleges that Credit Suisse “concealed material defects in the company’s risk policies and procedures and compliance oversight functions and efforts to allow high-risk clients to take on excessive leverage, including Greensill Capital and Archegos Capital Management, exposing the company to billions of dollars in losses.”  

Lawyers for the Michigan-based pension fund said that not only did the bank “conceal these operational landmines” from investors, which they say caused the price of Credit Suisse securities to be artificially inflated, “but it also undertook actions indicating that Credit Suisse securities were substantially undervalued, such as a massive stock buy-back program.”

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The lawsuit claims that following a series of corporate scandals which revealed deficiencies in Credit Suisse’s risk and compliance activities, the price of the bank’s American depositary receipts (ADR) fell nearly 30% to $10.60 per ADR by the end of March from $14.95 in February.

Greensill, which filed for insolvency protection in March, focused on the provision of supply-chain financing and related services. The company relied on loans provided by specialized supply-chain investment funds managed by Credit Suisse to finance its activities, and it would issue notes bought by investment funds to provide it with cash. The repayment of the loans was secured by Greensill’s entitlement to the cash paid to its clients’ suppliers.

However, the lawsuit alleges Credit Suisse investment funds bought notes tied to Greensill’s future accounts receivables finance activity, “meaning these loans were only secured by future and uncertain sales, and were therefore riskier.”

Archegos held assets of approximately $10 billion, but, according to the complaint, it used the leverage provided by its swaps strategy to gain exposure to more than $50 billion worth of securities.

“Unbeknownst to investors and regulators, several large brokerage banks, including Credit Suisse, had each simultaneously allowed Archegos to take on billions of dollars of exposure to volatile equities through swaps contracts, dramatically elevating the risk posed by these concentrated positions,” said the lawsuit.

According to the lawsuit, during the week of March 22, a group of banks that facilitated Archegos’ “high-risk strategy” became concerned because the market value of some of the stock shares underlying its swaps positions had declined. And by March 26, several of the banks, including Morgan Stanley, Goldman Sachs and UBS, began liquidating billions of dollars’ worth of securities at “fire-sale prices” after Archegos failed to meet a margin call.

“By the time Credit Suisse tried to liquidate its own positions underlying Archegos swap contracts over the ensuing weekend, prices had already collapsed and Credit Suisse quickly racked up billions of dollars in losses,” the lawsuit said.

“The loss we report this quarter, because of this [Archegos] matter, is unacceptable,” the bank’s chief executive, Thomas Gottstein, said in statement, according to BBC News.

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Home > News > Pensions > Investors Should Decarbonize Portfolios by 10% Annually, MSCI Says
Pensions

Investors Should Decarbonize Portfolios by 10% Annually, MSCI Says

The firm laid out plans for asset owners, managers, and other participants in a call to action this week.
By Sarah Min


Asset owners decarbonizing their portfolios should do so at a rate of about 10% annually to reach net-zero by 2050, says MSCI. That’s in addition to other steps institutional investors should take to curb emissions, including engaging with carbon-offending companies and implementing a climate benchmark. 

Other climate research institutions have set reduction targets for investor portfolios in the past. Notably, the Intergovernmental Panel on Climate Change (IPCC), a research arm of the United Nations, has said investors should similarly target reductions of 5% to 15% annually in their asset pools. 

But the 10% target from MSCI comes from its climate risk modeling team, which based its analysis on what it would take to get the companies in the MSCI All Country World Index (ACWI) Investable Market Index down to net-zero by 2050. The index covers nearly 9,000 securities globally. 

MSCI announced its plan for asset owners this week in a call to action for asset owners, managers, and others. The index provider argued that all participants in the capital markets should take part in a greener economy, including a complete reallocation of capital from asset owners. MSCI itself said it would target net-zero by 2040, its latest sustainability commitment. 

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“Asset owners have a critical role to play, but it’s not only for the greater good, it’s also because not taking these considerations into their investment decisions now, honestly, is at their own peril,” said Sébastien Lieblich, global head of index solutions and managing director at MSCI.

“By not taking into consideration climate change, they put their capital at risk,” Lieblich said. That ranges from failing to avoid climate-related value destruction to missing climate-related technology opportunities. 

The MSCI plan came as President Joe Biden said the US would cut emissions in half by the end of the decade, as well as increase funding for less developed countries to do the same. He laid out this objective during a telecast yesterday, which was Earth Day.

Asset owners should consider risk management strategies, MSCI said, including noting stranded assets that will not make the transition to a net-zero economy. Investments prone to natural disasters such as wildfires, droughts, and flooding should also be carefully monitored. 

Investors should also direct capital toward clean energy technologies, such as batteries, solar panels, and wind farms, the firm said. 

Last year, the index provider released its MSCI Climate Paris Aligned Indexes that can integrate the 10% carbon emissions reduction into the MSCI ACWI. 

The firm has said the indexes are based on the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and are designed to exceed the minimum requirements for climate-related disclosures in the European Union. 

Among other measures, the Paris-aligned indexes exclude companies that derive more than 1% of revenue from coal mining and firms that derive 50% of revenues from thermal coal-based power generation. 

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