Credit Suisse helped to sell billions of dollars of securities that were issued by offshore investment vehicles and then sold to retail customers of Portugal's crisis-hit Banco Espírito, the Wall Street Journal reports.

Credit Suisse helped to sell billions of dollars of securities that were issued by offshore investment vehicles and then sold to retail customers of Portugal's crisis-hit Banco Espírito, the Wall Street Journal reports.

According to the WSJ, corporate filings and people familiar with Portugal's investigation into the Espírito Santo affair said that many customers did not realise that the investment vehicles were loaded with debt issued by various Espírito Santo companies and served as a mechanism to finance the family-controlled firm.

Portuguese regulators investigating Espírito Santo have identified at least four offshore investment vehicles whose securities, mostly preferred shares, were sold with the help of Credit Suisse to Banco Espírito Santo customers, the report said.

Three of the vehicles, called Top Renda, EuroAforro Investments and Poupanca Plus Investments, are based in Jersey.  

The report said that according to corporate records filed with the Jersey Financial Services Commission, Credit Suisse served as "arranger and dealer" for these three vehicles, a role that included not just underwriting securities but also handling administrative and financial needs.

A fourth vehicle, EG Premium, is based in the British Virgin Islands.

People familiar with the investigation said all four entities are controlled, at least in part, by Swiss financial company Eurofin Holding SA, which was also partly-owned by Espírito Santo until 2009 and has had close business ties to the conglomerate, the report said.

According to corporate filings and internal Eurofin documents seen by the publication, the vehicles invested primarily in debt issued by Espírito Santo companies, including the Portuguese bank, its Luxembourg-based parent and an Angolan mining- and infrastructure-investment company called Escom.

Citing corporate filings, the report said that Credit Suisse had agreements dating back to the mid-2000s with EuroAforro and Top Renda to handle the issuance of up to $2.5 billion of each of their preference shares.

Credit Suisse also paid the operating expenses for the three vehicles, including legal and audit fees and administrative costs.

In response to the WSJ article, Credit Suisse confirmed in a statement that the special purpose vehicles were established at the request of Banco Espirito Santo in 2001 and 2002 and that it acted as arranger.

“The special purpose vehicles issued notes between 2001 and 2008, with only two incremental taps post crisis, comprising an incremental further net issue by EuroAforro of 20,254,570 shares for net proceeds of approximately €202.5 million ($270.3 million) on 12 Jan 2012 and 27 February 2014,” the firm said in a statement.

“At no point did Credit Suisse distribute, sell to or advise any clients of BES and its affiliates (whether retail or institutional) nor any other third party in relation to the named SPVs or the securities issued by the SPVs. Nor does Credit Suisse have any market or credit risk exposure to these instruments. Credit Suisse has no visibility as to any onward distribution by the BES branches or subsidiaries,” the statement added.

Troubles

The Portuguese government announced last month it was stepping in with a €4.9 billion ($6.5 billion) bailout plan to rescue Banco Espirito Santo after it posted a first half loss of €3.6 billion. Credit Agricole said its share of this loss was €502 million and that it had recorded a €206 million impairment charge on the value of the stake.

In July, Espírito Santo Financial Group agreed to sell its Swiss private banking subsidiary’s client portfolio for the Iberian and Latin American regions to Swiss-based private bank Compagnie Bancaire Helvétique Group for an undisclosed sum.

Banco Espirito Santo Group, which is headquartered in Luxembourg, has been plagued by scandal in the past year.  Last month, its head, Ricardo Salgado, left after being arrested for alleged tax fraud and money laundering after an audit conducted by Portugal's central bank found a number of financial irregularities at the firm.

Credit Agricole SA reported a substantial 98 per cent fall in net income to €17 million for the second quarter, down from €696 million a year ago, after writing off the value of its stake in troubled Portuguese Banco Espirito Santo to zero.