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Credit Suisse Resorts to Legal Loophole to Overturn $607M Settlement
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Credit Suisse Resorts to Legal Loophole to Overturn $607M Settlement

Story Highlights

Credit Suisse has appealed a $607 million court award as a settlement for allegedly allowing one of its bankers to mismanage accounts of former Georgian Prime Minister Bidzina Ivanishvili.

Credit Suisse (CS) has mounted a last-minute legal challenge as it looks to avoid paying a billionaire client a $607 million court settlement. The $607 million settlement was awarded in favor of the former Georgian Prime Minister, Bidzina Ivanishvili, after he sued CS over claims that it allowed one of its ex-bankers to mismanage his accounts.

The billionaire investor had sued the Bermuda and Singapore units of the bank for breaching the contract and fiduciary duties. The Wall Street Journal reports that Patrice Lescaudron, an ex-banker at Credit Suisse, frequently mismanaged Ivanishvili’s accounts. For example, the private banker allegedly cut and pasted signatures to make unauthorized stock bets. The fraud only came to light in 2015 when one of Lescaudron’s stocks plummeted in value.

Bermuda Loophole

The $607 million court award represents a final calculation of what Ivanishvili would have made had his accounts at Credit Suisse Life Bermuda Ltd (CS Life) invested in a medium-risk investment portfolio. According to Bloomberg, Credit Suisse has turned to legislation passed in 2000 in Bermuda that allows for the creation of segregation accounts to try and overturn the payout. The legislation allows the splitting of assets and liabilities into separate accounts.

While one of the lenders’ lawyers says the claim was valid, he says it cannot be enforced against it. According to the CS Life lawyer, the $607 million claims were linked to segregated accounts and should only be settled by those accounts.

The Bermuda Supreme Court will pass an order on whether the argument is valid and what happens next. If Credit Suisse Group AG’s Bermuda Life is successful in its application, it will not have to make any payment to Ivanishvili. In March, the Supreme Court concluded that Credit Suisse knew or should have known that Lescaudron was mismanaging Ivanishvili accounts.

The outcome of the Bermuda trial will show whether Credit Suisse can be insulated from future liability. In Switzerland, the lender faces charges for allegedly allowing Lescaudron to launder more than $60 million.

Wall Street’s Take

The Street is not bullish about the stock, with a Moderate Sell consensus rating, based on one Hold and two Sells. The average Credit Suisse price target of $6.93 implies 17.3% upside potential from current levels.

Bloggers’ Opinion

TipRanks data shows that financial bloggers’ opinions are 100% Bullish on CS, compared to a sector average of 69%.

Key Takeaway for Investors

The $607 million fine in Bermuda would significantly impact Credit Suisse, which is trying to bounce back from a net loss of CHF273 million ($280.5 million) in the first quarter. According to CNBC, the lender has net litigation provisions of CHF703 million. The lender is at risk of plunging into further losses as it works through a backlog of legacy cases and prepares for new cases. 

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