Credit Suisse Sued For £12.7M Over COVID-Crash Margin Call

By Bonnie Eslinger
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Law360, London (October 16, 2020, 4:18 PM BST) -- A family trading firm has sued Credit Suisse for £12.7 million ($16.4 million) for allegedly refusing to accept additional collateral to support its leveraged debt during the market crash sparked by the pandemic, forcing it to liquidate its share portfolio at a "severely depressed price."

Blue Sky Equity Trading — a registered limited liability partnership of six members of a family, which they used to trade in securities — sued the bank on Oct. 7 over a margin call made on March 13. The call demanded approximately £1.2 million within two days as the market was roiled by turbulence created as the pandemic spread.

The Morgan family said in their claim at the High Court, which has newly been made public, that when they moved their share portfolio — then worth about £16.4 million — over to Credit Suisse in 2017 and took out a loan against it they were assured by bank staff that the lender would secure the debt if there was a stock market crash with some of the family's property assets.

But Credit Suisse reneged on that agreement as the COVID-19 outbreak struck, according to the particulars of claim.

"As a consequence of a margin call made by the defendant and the defendant's refusal in breach of contract to accept additional collateral offered by the claimant...the claimant's share portfolio, which had been valued in excess of £25 million in February 2020 was liquidated for only £13.8 million," the lawsuit states.

The family is claiming the difference in value as losses they suffered.

At the start of March 2020, the family had drawn about £11.4 million from the £14.5 million loan facility, according to the claim. As news of the pandemic unfolded, the COVID-19 crisis caused stock markets to crash, sending the value of the Blue Sky portfolio plummeting, the family said.

The Morgans said that, because the loan facility had been secured against its portfolio, they offered the bank property assets worth approximately £10 million as well as a personal guarantee for the entire £14.5 million loan facility. But the bank unlawfully refused to accept such security, according to the suit.

"The claimant, with only a limited amount of ready cash, and against the background of a collapsing stock market, calculated and concluded, correctly, that the defendant had left it with no choice but to sell the portfolio assets into the collapsing stock market," when it opened on March 16, the Morgans said.

A margin call takes place when the value of an investor's account falls below a required amount, so a broker demands that the account is topped up to that minimum value. The family's contract with the bank required a specified loan-to-portfolio value balance.

During the weekend following the bank's March 13 demand, the family members "carried out extensive projections and calculations." They concluded that the loan-to-value limit "would soon be breached again," even if they paid the £1.2 million, leading to more margin calls that they would not have cash on hand to pay.

Neil Morgan told a bank representative in a March 12 email to Credit Suisse that he felt shocked and betrayed by the lender's inflexibility, the family claims. He said he owned 10 businesses that qualify for the government's coronavirus business interruption loan program, which, in theory could produce £12 million.

"There is absolutely no reason why Credit Suisse should not accept my [personal guarantee]," Morgan wrote in the email. "Whilst some of my assets are not immediately liquid, there is no difficulty in reducing the price of them to sell quickly if it ever became necessary to do so."

Credit Suisse breached its duties to the family partnership by not exercising discretion and refusing to accept the other assets, and also giving them only two days to comply with the margin call, the suit states. The bank also ran roughshod over Financial Conduct Authority standards and principles, including those of providing "skill, care and diligence" to clients, the suit adds.

The lawsuit seeks financial damages for the claimed losses, with interest and legal costs.

Representatives for the parties did not respond to Law360's requests for comment.

Blue Sky Equity is represented by Nicholas Isaac QC of Tanfield Chambers.

The bank is represented by Cahill Gordon & Reindel (UK) LLP.

Additional counsel details were not available.

The case is Blue Sky Equity Trading LLP v. Credit Suisse (UK) Ltd., case number CL-2020-000655, in the High Court of Justice of England and Wales.

--Editing by Ed Harris.

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