Credit Suisse Hits Back At £12.7M COVID-19 Margin Suit

By Joanne Faulkner
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Law360, London (November 13, 2020, 5:41 PM GMT) -- Credit Suisse has told a court in London that it was not required to accept property as collateral from a family trading office that claims the bank cost it millions through a margin call in the market shock during the coronavirus crisis.  

The U.K. subsidiary of Credit Suisse has hit back in a defense filed on Nov. 6, which has now been made public, at the lawsuit brought by Blue Sky Equity Trading. The company is seeking £12.7 million ($16.4 million) over claims that the bank unlawfully refused to accept property assets allegedly worth £10 million to support its leveraged debt when stock markets plunged in March. 

Blue Sky Equity — a registered limited liability partnership of six members of a family, which they used to trade in securities — said the margin call made on March 13 demanded approximately £1.2 million within two days. 

But Credit Suisse (UK) Ltd. said it had not agreed with the six members of the Morgan family to accept property or a personal guarantee if they were required to hand over extra money needed to keep trading.  

When the investors' own money — the margin — falls below agreed levels, clients face urgent calls for cash or other assets usable as collateral. The bank can usually liquidate the position if they do not pay. The family's contract with the bank required a specified loan-to-portfolio value balance.

Credit Suisse says in its defense that the two sides had discussed the matter and that the bank "had expressly indicated" what would not be accepted as collateral for lending under the terms of business. 

Some negotiations took place in 2018 about the possibility of Credit Suisse lending funds secured by property, the defense says. But ultimately this was not possible because "the claimant refused to allow Credit Suisse UK's external lawyers to examine the trust arrangements in place for those properties," the document reads. 

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

The Morgans said in their suit that they offered a personal guarantee for the entire £14.5 million loan facility. But Credit Suisse says in its defense that this did not provide any form of legal security and would merely have made the lender an unsecured creditor of the family firm. 

According to the Morgan family, 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.

The Morgans say that Credit Suisse breached its duties to the family partnership by not exercising discretion and refusing to accept the other assets. 

The family also says that when the margin call was made their portfolio — which had been valued in excess of £25 million in February 2020 — was liquidated for only £13.8 million. The lawsuit is seeking the difference in value as losses they suffered.

Representatives for the two sides did not immediately respond to Law360's requests for comments Friday. 

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

The bank is represented by Cahill Gordon & Reindel (UK) LLP. Full counsel information was not immediately 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.

--Additional reporting by Bonnie Eslinger. Editing by Ed Harris.

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