(Bloomberg) -- Banca Generali asked for help from a London judge in its attempt to find out what’s in 344 million euros ($368 million) worth of securitizations it sold to its clients, with many underlying credits now in some form of default.
The Italian wealth manager asked to compel CFE Finance, from which it has purchased emerging-market credits, to provide it with documents relating to the underlying assets at a hearing Tuesday.
CFE must provide the documents -- including loan and hedging agreements and guarantees from export credit agencies -- which lawyers for Banca Generali say they need to be able to comply with regulators and to properly value the assets. Out of 73 credits held in three Trade Finance securitization vehicles, 31 were in default with payments in arrears, the bank said.
“This is information that should have been provided accurately on day one and it’s frankly inexplicable that they haven’t been able to do it,” Andrew de Mestre, Banca Generali’s lawyer, said in court. “These are risky receivables and that enhances the need for the accuracy of the information.”
Four Trade Finance securitizations have been arranged by CFE and sold onto Banca Generali’s clients since 2018.
But lawyers for CFE said it is not contractually obliged provide the documents and providing them would be both “unreasonably burdensome” and could breach confidentiality clauses, according to documents prepared for the hearing by the Swiss manager.
Shares reversed earlier gains and fell 2% at 4:51 p.m. in Milan after Bloomberg News reported the trial on Tuesday.
“This is a very tricky situation because the alleged amount of potential provisions on this portfolio is significant for the company,” according to Fabrizio Bernardi, an analyst at Bestinver Securities.
CFE also alleges that Banca Generali are “looking unfairly to finger blame” despite the bank placing high-risk notes with its clients that did not perform as they’d hoped due to factors like Covid-19 and the war on Ukraine, which are outside the CFE’s control, the documents said.
Some of the notes have suffered losses in recent months. CFE wrote down a 10 million-euro Sudanese exposure in March and cut about 80% of the value on 40 million euros of Cuban credits claiming the notes couldn’t be fully recovered because of the country’s support of Russia.
Judge Sarah Falk said she’d give her decision at a later date, and suggested both parties kept talking to each other to “reduce the temperature” of discussions.
Read more: Banca Generali Clients Face $16 Million Cuba, Sudan Writedown
Banca Generali previously expressed concerns that some of the transactions could be much riskier than initially expected as CFE ceased reporting related sovereign or export credit-agency guarantees, according to documents Banca Generali filed to the court earlier this year.
For example, Banca Generali found out in November that only two out of 18 exposures in one of the securitizations had an export credit-agency guarantee, while it thought they were all covered by it. The bank also said in March it’s concerned about notes matured between October and April that haven’t been repaid yet, with 96 million euros still outstanding.
The Trade Finance notes are the second set of structured notes arranged by CFE to present a problem for Banca Generali’s clients in less than a year. In July, the private banking and wealth management unit of Assicurazioni Generali SpA took 80 million euros of provisions to repurchase securitizations backed by health-care receivables arranged by CFE, according to a public filing.
The issue “seems restricted to two specific exposure to Sudan and Cuba,” Banca Generali’s Chief Executive Officer Gian Maria Mossa said in a call with analysts last week when asked about the CFE securitizations.
Mossa said the company won’t repurchase and take provisions on the assets as it did last year with the healthcare credits. “Again, just two different stories, at least with the information we have today.”
(Updates with share price and judge reserving her decision in 11th paragraph.)
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