In-House Counsel

Look, Sometimes You Underestimate Your Legal Exposure By $600M Or So

Reserves are hard.

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lawyer shrugging shrug whatever i dont know confused.jpgCredit Suisse can’t catch a break these days.

But on top of inflation and the bottom falling out of its Russian investments, not to mention the billions in losses it racked up in 2021, the Swiss bank hit another significant speedbump, announcing that it expects a first quarter loss due to a major jump in legal costs. Specifically, an upward adjustment in legal costs from around 100M francs to 700M francs (around $736M).

Making matters worse, this isn’t the result of some dangerous new case, but a reserves adjustment based on cases from more than a decade ago. Inflation is real, but it’s not that real.

The announced adjustment due to “developments in a number of previously disclosed legal matters” undersells how the bank played a little loose with the risk hanging over its head for years.

While the bank didn’t identify which cases forced it to finally recognize the potential exposure, there’s a pretty strong candidate. From the Guardian:

The market notice comes nearly a month after a Bermuda court ruled against Credit Suisse in a long-running legal battle with the former Georgian prime minister Bidzina Ivanishvili, who it said was the victim of fraud committed by a former banker, Pascale Lescaudron.

Lescaudron was sentenced to five years in prison in 2018 after admitting to forging client signatures to divert money and make stock bets without their knowledge. The banker killed himself in 2020.

The court ruled in March that Ivanishvili and his family were due damages worth more than $500m (£385m).

How the bank overlooked the risk is a little shocking the more you dig into the facts of the underlying case. The banker forged signatures, falsified trades, and covered up ballooning losses for eight years. A rogue employee ripping people off for a couple of months is one thing, but after eight years it’s kind of your fault.

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And this recent decision isn’t even the full exposure… to this one former client! Ivanishvili still has a case against the bank in Singapore for another $300M or so. If anything, Credit Suisse may still be a little light on these reserves.

Yep, Credit Suisse can’t catch a break… from natural and logical consequences.

HeadshotJoe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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