Credit Suisse securitises yacht loans to oligarchs and tycoons

Credit Suisse has secured a portfolio of loans linked to its richest clients’ yachts and private jets, in an unusual use of derivatives to eliminate risks associated with lending to ultra-rich oligarchs and entrepreneurs.

The Swiss lender, which has endured a tough year marked by repeated scandals, quietly sold part of the risk in connection with $ 2 billion. of its “ultra-high-net-value” customer loans by the end of 2021.

The securitization of the portfolio of loans to tycoons and oligarchs backed by their “jets, yachts, real estate and / or financial assets” was carried out by a unit of the bank that has previously been plagued by sanction-related issues.

An investor presentation for the deal, seen by the Financial Times, explains that one of the main goals of this division is to “create a positive brand impression of CS by funding principals’ preferred business tools (business jets) and luxury yachts.”

While banks regularly engage in these so-called “significant risk transfers” transactions to reduce the capital they hold in connection with loans, derivative contracts usually involve stable corporate or mortgage portfolios that form bread and butter in bank lending.

Bar chart of the size of outstanding yacht loans ($ mn) showing Credit Suisse's yacht loans now exceeding $ 1 billion.

The nature of the underlying collateral meant that Credit Suisse had to offer a striking interest rate of more than 11 percent to lure a handful of hedge funds into the $ 80 million transaction. USD, an indication of the price the bank is willing to pay to improve its capital position without hitting public stock markets.

The agreement’s investor presentation also lifts the lid on the Swiss bank’s private banking division and describes some of the closely guarded trade secrets in its international asset management franchise.

A slide reveals that in 2017 and 2018, Credit Suisse experienced 12 defaults on its yacht and aircraft loans, a third of which “related to U.S. sanctions against Russian oligarchs. Press reports at the time indicated that Oleg Deripaska and brothers Arkady and Boris Rotenberg had to to terminate private jet leases with the bank.

The same slide explains an increase in defaults on Credit Suisse’s mortgages in recent years because some customers were “not very happy with the bank” as it withdrew from certain markets.

While Credit Suisse has long provided loans to finance billionaires’ private jet purchases, its entry into yacht financing is relatively recent. The slides show that it only really started lending yachts in 2014, but has quickly expanded the business with its outstanding loans of over 1 billion. USD last year.

The portfolio also includes loans to wealthy clients’ holdings of shares and bonds as well as their holdings in private equity and hedge funds. The slides show that on the latter, the bank is sometimes willing to offer 80 percent leverage on their positions, which it acknowledges is “above standard”.

The presentation adds that “lending catalysts” to these customers may include a “change in personal situation”, such as a “divorce”.

The $ 80 million banknotes are listed on the International Channel in the Channel Islands, a stock exchange that made itself known for its role in the Neil Woodford scandal, but which is often the favorite place for niche debt deals.

Credit Suisse declined to comment.

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