On Friday 10 June, Credit Suisse Group AG stock was trading 3.85% down, and the reason is the new inquiry launched by UK and Swiss authorities over suspected indiscretions pertaining to sovereign loans to Mozambique by the bank. That inquiry includes a study over tuna bonds, put together by Credit Suisse and Russia’s VTB.
The tuna bond was basically a loan originated in 2013, by Swiss banking giant Credit Suisse, and a VTB subsidiary. Some of the big and renowned investors around the globe invested in that loan. Some of them were Aberdeen Asset Management, Allianz Global Investors, and Alliance Bernstein.
International lenders and donors, including the IMF, have already stopped forwarding more money to Mozambique, due to the public anger widely witnessed there over the US$850-million worth of bonds, which was to be used to pay for a new fishing fleet.
The country failed to use the loans according to what was decided in the beginning. Due to this, the company came under the scrutiny of international regulators. The State used most of the proceeds of the loan on patrol vessels and security equipment. According to government officials, these were necessary expenditures to protect the fishing boats.
As per the latest update, UK Financial Conduct Authority and Switzerland’s FINMA are investigating the role played by Credit Suisse in arranging that deal. On the other hand, the Financial Conduct Authority (FCA) is examining VTB. But at this time, this is only an inquiry which might not even lead to a formal investigation. Business Finance News believes the current stock movement of the company is more of an overreaction of the market, rather than a fundamental based move.
Mozambique faces the possibility of not being able to pay its bills, since international lenders decided to halt financial aid in April. That was over the uncertainty of tuna bonds, and other types of undisclosed loans, which were valued at roughly US$1.4-billion.
The loans forwarded to the country exceeded their own ceiling under its budget. They were forwarded in 2013 and 2014 under the supervision of the preceding government, and were given by Credit Suisse and VTB, together. The State failed to make a loan repayment last month which was due to VTB. That payment was to be made from state-owned MAM. The State is still in talks with the bank over this issue.
Now, the State has offered to exchange that loan for a new government bond after the prices of that loan touched rock bottom. Many investors are sceptically looking at that deal and are seeking legal guidance over it. Credit Suisse has not commented on the case yet, but VTB previously said in a statement that: “As with all other areas of our business we have been open and transparent with the regulator on the Mozambique transaction and are not aware of any investigations”.
Another possible reason for the stock decline is the statement of Davide Serra, the founder of Algebris Investments LLP, who said that the Credit Suisse CEO Tidjane Thiam faces the possibility of losing the confidence of investors, as his bank struggles to cut costs and restructure. He said that if the bank is unable to deliver within 12 months, investors will lose hope.
Source: Business Finance News
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