The company has allowed its 30-year-old trading prodigy to take high levels of risk to rack up profits in illiquid corners of wild markets. When he turned that run into a job at Citadel hedge fund late last year, the Swiss bank pledged his own fund to lure him in again.
But at calm Credit Suisse, which has jumped from one crisis to the next this year, Lemssouguer has apparently become too big of a risk. The bank on Wednesday canceled plans for the young star’s fund, allowing her to pursue her ambition without her money or support. The episode marks the abrupt change in attitude of the bank after embarrassing debacles stemming from Archegos Capital Management and Greensill Capital has caused losses of several billion dollars for the company.
“These accidents have more than anything shown that Credit Suisse has been really struggling to achieve returns over the past few years,” said Peter Hahn, a former banker who is now professor emeritus at the London Institute of Banking & Finance. “And it looks like these kinds of stretches are now going to be less and further Come in. »
Lemssouguer’s successful rise was not without controversy. The London-based trader rose to fame by buying large blocks of debt, which allowed him to corner the opaque illiquid securities market and cause losses for rivals who took the other side of the trade . This account of his tenure at Credit Suisse is based on interviews with eight people who spoke on condition of anonymity.
In 2019, at least three rivals and business clients filed complaints against him with the UK’s financial watchdog, alleging insider trading and price manipulation, according to people familiar with the matter. One of those complaints was from a hedge fund that lost money on a bet that was very profitable for Credit Suisse, while another was from a company that actually made money. money on trade, people said.
Although Credit Suisse has not received any formal inquiries from the UK’s Financial Conduct Authority after the complaints, some clients have informally expressed concerns about Lemssouguer’s tactics with contacts working at the bank, the bank said. ‘one of the people. These complaints were not escalated by customers, the person said.
It is not clear whether the UK regulator has looked into the complaints against Lemssouguer. The FCA generally acknowledges receipt of any complaint from the parties who file it, but may not always provide information on how it is handling the complaint. The FCA declined to comment.
Lemssouguer, who declined to comment for this story, referred all questions to Credit Suisse.
“We have clear processes for handling complaints from clients and other counterparties,” a Credit Suisse spokesperson said in an emailed statement. “These are officially registered and examined to determine if there has been any form of wrongdoing. We have not received any formal complaint on this subject ”.
The collapse of secret family office Archegos in March, just weeks after the implosion of supply chain finance provider Greensill, rocked Credit Suisse and ushered in a period of intense soul-searching at the bank. Switzerland’s second-largest lender is currently investigating what was wrong with its internal controls and reshuffled its top ranks – its asset management boss, chief risk officer and chief investment banker have quickly resigned.
Credit Suisse executives announced the launch of the Lemssouguer Absolute Return Credit Fund, which aimed to make big bets on struggling companies, on hold in March as part of a larger overhaul of its asset management unit. After being forced to liquidate $ 10 billion in supply chain funds linked to Greensill, the bank decided to approve only funds that it considered relatively low-risk and straightforward, according to people familiar with the matter.
On Tuesday, during a call to discuss the launch of new funds, some executives at Credit Suisse issued a pessimistic note about products that deviate from traditional strategies. And on Wednesday, the bank announced it was removing its old adrift star.
Just six months ago, Credit Suisse persuaded Lemssouguer to relinquish a role at Ken Griffin’s Citadel. The Chicago-based hedge fund firm, with $ 39 billion in assets, hired him as a portfolio manager as part of a global credit expansion, Bloomberg reported at the time.
It’s easy to see why Credit Suisse wanted to get the trader back: he ranked among the top performers, helping the bank’s European high yield bond office generate around $ 220 million in 2020 by making outsized bets on risky junk bonds, distressed debt and illiquid securities, according to people close to them folder. This represents approximately 5.5% of the bank’s total fixed income trading income.
In recent marketing materials, Credit Suisse has described the young trader as a scholar of the junk-bond market who has generated historic profits by betting on the fortunes of struggling European companies.
“His ability to understand the psychology and risk tolerance of market participants and to assess liquidity in this context has led to some of the most profitable years in the history of the trading table,” according to a presentation advertising of its new credit fund seen by Bloomberg News. “He played a decisive role in the visibility and risk-taking capacity of the group and put in place rigorous investment and risk management processes.
Born in Morocco and trained at the École Polytechnique in France, Lemssouguer arrived at Credit Suisse in 2014, fresh out of a summer internship program at Goldman Sachs Group Inc. His first job at the Swiss bank was as an analyst based in London, and he was later appointed to trader in the high yield bond office.
Lemssouguer’s debut at Credit Suisse coincided with a risk reduction exercise under the leadership of then-CEO Tidjane Thiam. After losing around $ 1 billion due to impaired bond and securitized product write-downs in 2016, Thiam pledged to pull out of the riskier business.
But in 2019, Credit Suisse rediscovered its appetite for aggressive credit transactions. The name behind the higher volumes of debts traded was Lemssouguer, which caused a stir with big bets on debt from companies such as travel company Thomas Cook Group Plc and UK-based debt collection firm Lowell Group.
His signing strategy was to buy huge chunks of debt and offload the paper at a higher price, according to people familiar with the matter. At times, he controlled up to 90% of the debt flows of distressed companies, and Credit Suisse gave him leeway to buy blocks of bonds. until $ 100 million, some people have said. This is unusually large by industry standards: In rival banks, transactions less than one-third of that amount must be approved by a committee of credit executives.
Still, Lemssouguer’s tactics made some market players uncomfortable. At least two investment funds and a rival bank have accused Lemssouguer in complaints filed with the regulator of distorting market prices and trading inside information relating to Lowell’s £ 33.5million ($ 47million) bond buyback in August 2019, the people said.
Bond buybacks are generally kept confidential between the issuer, the bank organizing the transaction and the investors who have agreed to sell. While Credit Suisse was not handling the takeover, a company that complained cited information distributed by Lemssouguer prior to the takeover that indicated it was aware of the pending transaction, according to people familiar with the matter.
Lemssouguer’s optimism about Lowell unsecured bonds pre-dated the buyout, as his group had been recommending clients to invest in them since at least 2017, according to a memo seen by Bloomberg. And Lowell executives had indicated in April 2019 that they would like to replace bonds with secured debt at some point.
After the buyback announcement, Lowell bond prices surged as the cost of debt insurance plunged, offering Lemssouguer a profit on his trade, people said.
Despite the complaints, 2020 started off as another big year for the trader, who was able to find massive business opportunities amid the chaos caused by the global pandemic. In the first quarter of 2020, it traded at least $ 21 billion, more than some banks in an entire year.
It quickly caught the attention of Pablo Salame of Citadel, the company’s global credit manager. Salame, who was building his team after joining Citadel from Goldman Sachs in 2019, called on Lemssouguer in September.
In November, however, Credit Suisse lured Lemssouguer by offering him the opportunity to oversee the launch of his own fund platform within his investment unit, with seed money from the bank to kick the knot. thumbs up to his efforts. His potential fund is called Arini, a reference to the parrots he has been raising since growing up in Morocco.
Lemssouguer had started meeting with potential investors in 2021 and planned to raise up to $ 500 million for his first fund when Credit Suisse was rocked by the two implosions of Greensill and Archegos.
Today, Credit Suisse’s asset management division is in the throes of a major overhaul and new Credit Suisse chairman Antonio Horta-Osario is considering a restart of the strategy as part of a broad review of the assets. bank operations. The reduction or split of the asset management operation are among the options he can consider.
Lemssouguer, meanwhile, is encouraged to go it alone.
– With the help of Luca Casiraghi
(Adds details on the Lowell buyout from the second paragraph under the caption “Redemption Battle”.)