Credit Suisse has securitized the portfolio of private jet and yacht-related loans of its wealthiest customers, using an unusual use of derivatives to reduce risk. involved lending to financiers and super-rich businessmen.
The Swiss lender, endured five bruises marked by repeated scandalsquietly sold at a fraction of the risk associated with $2 billion in “ultra-net-worth” customer loans by the end of 2021.
The securitization of loans to tycoons and oligarchs backed by “jets, yachts, real estate and/or financial assets” was carried out by a unit of the bank. goods that have previously had problems related to sanctions.
The investor presentation for the deal, seen by the Financial Times, explains that one of the department’s main goals is to “create a positive brand impression of CS by funding business tools favorite of principals (business jets) and plush toys (yachts). ”
While banks frequently engage in these so-called “significant risk transfers” transactions to reduce their capital holdings relative to loans, derivatives transactions often involve portfolios of credit. corporate portfolios or loyalty mortgages, which constitute the bread and butter of the bank’s loan.
The nature of the underlying collateral meant Credit Suisse had to offer an attractive interest rate of more than 11% to entice a handful of hedge funds into the $80 million trade, a sign for see the price a bank is willing to pay to improve its capital position without tapping the public equity market.
The deal’s investor presentation also raised the lid for the Swiss bank’s private banking division, detailing some of the closely guarded trade secrets of the international wealth management franchise. its economics.
A slide revealed that in 2017 and 2018, Credit Suisse experienced 12 defaults on loans for yachts and aircraft, with a third of these “related to US sanctions on with Russian oligarchs. The press coverage at the time indicated that Oleg Deripaska and brothers Arkady and Boris Rotenberg had to terminate a private jet charter with the bank.
The same slide explains the increase in defaults on Credit Suisse’s mortgages during those years because some customers were “not particularly happy with the bank” when it pulled out from certain markets.
While Credit Suisse has long provided loans to finance billionaires’ private jet purchases, its foray into yacht finance is relatively recent. Slides show it only started lending for yachts in earnest in 2014 but has rapidly expanded its business, with its outstanding loans exceeding $1 billion last year.
The portfolio also includes loans against wealthy clients’ stock and bond holdings, as well as their holdings in private equity and hedge funds. The slides show that the bank is sometimes willing to offer 80% leverage on their positions, which the bank admits is “above standard”.
The presentation adds that a “lending catalyst” for these customers could include a “change in personal circumstances” such as a “divorce”.
The 80 million dollar bills are listed on the International Stock Exchange in the Channel Islands, a stock exchange earn fame for its role in the Neil Woodford scandal but is often the site of choice for niche debt transactions.
Credit Suisse declined to comment.
