The Jeffrey Epstein legal vortex grips finance and politics

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In today’s newsletter:

• Lawsuits reveal Jeffrey Epstein ties

• UBS inherits Greensill/SoftBank woes

• Private equity’s refinancing cliff arrives

Top UK officials get dragged into Epstein saga

The late disgraced financier Jeffrey Epstein’s reach into the world of finance and politics seems to get wider by the week.

Further light has been shed on the deep ties Epstein had to JPMorgan Chase and its former top executive Jes Staley who would later lead Barclays.

JPMorgan last week paid $290mn to settle one of two bombshell lawsuits against the bank, which alleged that in its 15-year relationship with Epstein it had profited from human trafficking by ignoring multiple internal warnings about their former client’s sex crimes.

The agreement came just hours after a federal judge ruled that the case, originally brought by a single Epstein accuser, would be widened to include dozens of women who claim to also have been abused by the late paedophile.

JPMorgan faces similar allegations in a separate legal challenge from the US Virgin Islands. The bank is now suing Staley in an effort to make him liable for damages it may face over the Epstein claims. Staley denies liability.

This week came another wrinkle. In a 22-page report compiled by JPMorgan following Epstein’s arrest in 2019 and filed to a New York court, the Wall Street lender revealed that he had offered to connect Staley with Alistair Darling, who was UK chancellor at the time, and former business secretary Peter Mandelson to whom he referred to as “Petie”.

It has dragged two officials who helped guide the UK’s response to the financial crisis into Epstein’s orbit.

The bank’s investigation — codenamed Project Jeep — went on to refer to various meetings and conversations between Epstein and Mandelson, including one at the World Economic Forum in Davos in 2010.

It also suggests that Mandelson stayed at Epstein’s lavish townhouse on Manhattan’s Upper East Side in June 2009 while he was the UK business secretary and the financier himself was in prison for soliciting prostitution from a minor in Florida. 

Mandelson has refused to either confirm or deny the stay and a person close to Mandelson said his association with the financier was principally through his accomplice Ghislaine Maxwell, now serving a 20-year sentence for conspiring to sexually abuse minors.

While there is no suggestion of wrongdoing by either Mandelson or Darling in the dossier, it shows how Epstein touted his supposed influence.

UBS caught between a rock and a hard place

It may only have been just over a week since UBS completed the takeover of its longtime rival Credit Suisse, but executives are already having to deal with the tortuous conflicts of interest that the deal presents.

Lawyers for UBS have begun sifting through the mountains of paperwork that support Credit Suisse in the legion of outstanding lawsuits — deciding which cases have merit and which could damage UBS’s business interests and reputation.

Top of the pile is the current London High Court case brought by Credit Suisse against its former client SoftBank in relation to a $440mn debt connected to bust finance company Greensill Capital.

Credit Suisse has alleged that SoftBank masterminded a financial restructuring of Katerra — a Californian construction company funded by SoftBank’s Vision Fund that was also a client of Greensill — that benefited the Japanese group at the expense of the Swiss bank’s clients.

The lawsuit centres on $440mn owed to the Swiss bank’s customers by Katerra, which went bankrupt following the collapse of Greensill. Katerra had received the money via Credit Suisse’s supply-chain finance funds.

Late in 2020, SoftBank agreed to provide an emergency cash injection into Greensill, which was intended to cover the debts at Katerra. DD readers may recall an FT story from 2021 that revealed the money never reached the Credit Suisse funds.

The problem with the lawsuit for UBS’s top lawyers, however, is that SoftBank is still very much a client of its investment bank, two people familiar with the matter told the FT’s Owen Walker.

UBS therefore needs to consider whether it continues to pursue the case and risk losing a plum investment banking client, or abort it and risk upsetting the wealthy clients it has just picked up from Credit Suisse whose money was invested in the Greensill funds.

DD wonders whether UBS lawyers will be equally as conflicted when deciding whether to continue with Credit Suisse’s lawsuit against Zurich finance blog Inside Paradeplatz.

A quirk in CLOs starts to bite private equity

The slowdown in Wall Street’s lucrative CLO machine is starting to pinch corporate America.

Companies have been hit by shifts in the market for so-called collateralised loan obligations, the biggest buyers in the $1.4tn leveraged loan market.

A loan extension for California utility PG&E was shelved last month. Separately two KKR-backed businesses — Heartland Dental, a provider of services to dentists’ offices, and digital media business Internet Brands — had to pay lenders more or agree to tougher investor protections in return for getting their loan maturities pushed back, people with knowledge of the matter told DD’s Eric Platt and the FT’s Harriet Clarfelt.

The issue for borrowers isn’t just the drop-off in the issuance of new CLOs though. A growing number of existing CLOs are hitting limits that curtail their ability to invest in new loans. That’s not a design flaw for what it’s worth, but a mechanism to protect a CLO’s investors.

As demand for new loans begins to sag — Bank of America estimates by the end of the year roughly 40 per cent of CLOs will exit so-called reinvestment periods — borrowing costs for companies are being pushed up.

“When a company has to find new lenders . . . that probably has an impact on the cost of capital because you have to make it interesting for new lenders,” said Rob Zable, the global head of Blackstone’s liquid credit strategies.

Job Moves

• Goldman Sachs has named Sam Morgan as global head of fixed income currency and commodities sales. Matt Verrochi will become head of Americas FICC Sales.

• Carlyle has named Takaomi Tomioka as co-head of its Japan advisory team.

• JPMorgan has named Teresa Heitsenrether as its new chief data and analytics officer. Tim Fitzgerald will be the new global head of securities services.

Smart reads

Fishing expedition Supreme Court justice Samuel Alito went on a lavish fishing trip with hedge fund billionaire and Republican megadonor Paul Singer. In the years that followed, Singer’s hedge fund came before the court at least 10 times, ProPublica reveals.

On the defence Investment in military tech start-ups is booming as investors bet rising geopolitical tensions will lead to lucrative contracts for Silicon Valley companies, the FT reports.

Banking blow-up Brady Dougan’s Exos Financial is struggling to make payroll and failing to find its way as a new age investment bank, reports Forbes.

News round-up

Odey Asset Management dumps stakes in UK companies (FT)

Amazon ‘tricked and trapped’ customers with Prime service, FTC claims (FT)

US bank consolidation: Biden vows crackdown while pushing deals (FT Lex)

Italy’s Eni nears $5bn deal for Neptune Energy (Bloomberg)

Singapore’s GIC accelerates US deals as China cools (FT)

Vacant offices are piling up in Silicon Valley (Wall Street Journal)