Credit Suisse attacked over luxury-resort flop
A United States judge says Credit Suisse preyed on investors in one of the US's most exclusive resorts when it awarded it a $375 million (SFr415 million) loan.
The Yellowstone Club is one of six high-profile real-estate projects in the US to which Credit Suisse granted similar loans. All are in financial difficulty.
The golf and ski resort, with greens and slopes reserved for millionaires, had attracted homebuyers including Microsoft's Bill Gates and former US Vice President Dan Quayle.
After a week of testimony, Ralph Kirscher, a federal bankruptcy judge in Montana, ruled on Tuesday that the loan Credit Suisse had given the Yellowstone Club was particularly shocking.
"[Credit Suisse's actions] were so far overreaching and self-serving that they shocked the conscience of the court," he said.
As a result, repayment of the Credit Suisse debt will take a backseat while other claims are settled first.
"We are disappointed in this ruling and disagree with the court's findings," wrote Duncan King, a Credit Suisse spokesman in New York, in an email to swissinfo.ch. "We are weighing our options at this time."
King said he could not comment further on the case but that the bank had not ruled out further legal action.
Preying on the rich?
The federal court's findings, if upheld, would add a curious case to the list of big American real estate projects gone awry.
The 13,600-acre resort, located in Montana's Gallatin Valley on the fringes of Yellowstone National Park, enticed deep-pocketed buyers with promises of "private powder", a concept that allowed only homeowners and guests exclusive access to thousands of acres of ski runs.
Plans for one home – reportedly the world's most expensive, offered at $155 million – required a 160-acre lot and called for ten bedrooms, a private gondola to the top of a nearby peak, and a 53,000-square-foot floor plan about the size of a nearby public library.
But the resort fell into financial trouble as the real estate market crumbled. The case was complicated by a messy divorce between the resort's principal developer, billionaire Tim Blixeth, and his wife, Edra, who assumed control of the resort only to declare personal bankruptcy in March.
Bloomberg News Service reported the resort recently had a buyer lined up for $455 million but the deal fell through.
The club was scheduled to go up for auction on Wednesday with two bidders interested – one of them Credit Suisse. Kirscher said the bank would have to clear other creditors' claims on top of any bid it made at auction.
Credit Suisse can still submit a claim for the remaining $232 million the club owes it.
Lenders too lax
The federal court said Credit Suisse should have reigned in lending made through an unregulated branch of the bank in the Cayman Islands. That branch had granted upwards of $2 billion in loans to six luxury resorts across the American west that are now in distress. The bank had negotiated some ownership rights in the high-profile projects.
Other struggling US resorts that Credit Suisse financed include Lake Las Vegas in Nevada, where singer Céline Dion bought a home. The bank is also currently trying to take control of Tamarack Resort in Idaho that was built with a $250 million loan to a French developer.
Kirscher said that Switzerland's number-two bank was far too lax in flagging up potential risks when awarding the loans.
Of the $375 million that Credit Suisse granted to the Yellowstone Club, the federal court said just $38 million went toward the actual resort.
Credit Suisse pocketed $7.4 million in fees from the loan. Nearly $209 million is said to have gone directly into Blixeth's personal accounts. He was later accused of improperly using the money to buy luxury airplanes, estates in Mexico and Europe, and a private island in the Caribbean. About $139 million has been paid back.
"Take as you will"
"If you look at the way these loans were made it's pretty easy to see trouble ahead," a source familiar with the loans in question and who is close to Credit Suisse told swissinfo.ch. The person requested anonymity to ensure continued access to information.
"The negligence here seems to be in the way these loans were administered. They weren't handled properly. It was basically 'take as you will'."
Blixeth, for his part, has denied any wrongdoing. "All financial transactions... have all been done in the ordinary course of business and in compliance with all laws," he said in a statement.
Kirscher left the door open on the extent to which Blixeth should have to repay Credit Suisse, but he was clear in saying Credit Suisse bankers had been compelled by greed.
"The only plausible explanation for Credit Suisse's actions is that it was simply driven by the fees it was extracting from the loans it was selling, and letting the chips fall where they may," Kirscher wrote.
"Unfortunately for Credit Suisse, those chips fell in this court."
Tim Neville, swissinfo.ch with agencies
The Yellowstone Club sits next to Big Sky ski resort southwest of Bozeman, Montana, near the border of Yellowstone National Park. The setting is spectacular, with 10,000-foot peaks, blue-ribbon trout streams and near grizzly bear and elk habitat.
The developer, Tim Blixeth, comes from a lumber background and secured the land for the exclusive resort in a real estate swap with the US National Forest Service and other public land agencies.
Warren Miller, a popular American ski film maker, served as the resort's ambassador of sorts and lived on the property. Tour de France Champion Greg Lemond also owns property there but has had a bitter falling out with Blixeth over money.
In 2007 Forbes magazine estimated Blixeth is, or perhaps was, worth $1.2 billion, making him one of the 400 richest people.
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