Credit Suisse agreed to pay $388m on 24 July to settle claims with regulators relating to its relationship with hedge fund Archegos, which collapsed in March 2021, costing Credit Suisse $5.5bn.

The M1 claim also stems from its prime brokerage relationship with Credit Suisse, which refers to the services offered by investment banks to hedge funds.

M1 alleged in its claim, which was filed on 4 July in the Commercial Court in London, that Credit Suisse made an incorrect margin call, which triggered the sale of stock that the hedge fund had pledged as collateral.

The hedge fund is claiming approximately $108m to replace shares sold by Credit Suisse following the margin call made in 2020, which it said the bank had wrongly calculated and was not in fact due.

The margin call

M1 and Credit Suisse had entered into a so-called total return swap agreement to allow the hedge fund to speculate on shares in Barclays.

M1 had pledged 26 million shares in South African telecoms firm MTN Group as collateral.

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Credit Suisse served M1 with a demand for a margin payment of $15.7m on 17 March 2020 at 8.35am.

A margin call is typically issued by a broker to an investor when the value of shares they have borrowed has fallen.

The investor is typically asked to deposit additional funds or sell shares to raise the percentage of their own money in the account above a certain minimal threshold, called the maintenance margin.

M1 asked Credit Suisse to sell some of the Barclays shares to cover the margin call.

Credit Suisse told M1 on 18 March 2020 at 10.34am that following the sale of the Barclays shares, there was a so-called prime margin due of $1.2m.

Credit Suisse also sent an email on 18 March 2020 at 12.31pm, which said M1 was liable for an “early termination” payment of nearly £6.7m.

The bank sent M1 a notice of default on 20 March after it said M1 had failed to pay the prime margin call.

M1 claims it paid the amount of the prime margin call on the morning of 20 March 2020, and said in an email to Credit Suisse at 10.16am that “the transfer of $1.122m to cover for the… overdue margin call is in transit”.

“Can you urgently provide the swift confirmation or evidence this has been sent?” Credit Suisse replied at 10.31 am.

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At 10.38am on 20 March 2020 Credit Suisse sent a “notice of event of default” to M1, which said the hedge fund was required to pay nearly $19.4m to the bank.

Credit Suisse acknowledged the receipt of M1’s prime margin call funds at 11.11am on 20 March 2020, but said that under the terms of their agreement it had the power to sell M1’s MTN Group shares.

Credit Suisse sold 13.5 million of the MTN Group shares that M1 had pledged as collateral, on or about 24 March, according to the claim.

‘Wrongful and unlawful’ share sale

M1 alleged that Credit Suisse’s prime margin call of 18 March was based on incorrect calculations by the bank and should never have been made.

The claim alleged that the sale of the MTN shares was therefore “wrongful and unlawful”.

M1’s claim said that Credit Suisse had incorrectly taken into account the early termination payment of nearly £6.7m when calculating margin.

The claim said that the early termination payment would not become due until 19 March 2020, and therefore should not have been used to calculate margin at close of business on 17 March.

“The calculation should therefore have been reduced by [more than $8m] such that no further margin was due from M1 Capital on 17 March 2020,” the claim said.

M1 is asking for the return of the 13.5 million MTN Group shares that it pledged as collateral and which it claimed were unlawfully sold.

The shares were valued at $100m on 29 June 2023, according to M1’s claim. M1 is also claiming for $8m in dividends it would have received over the period, bringing the total claim to $108m.

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M1 said that even if Credit Suisse was entitled to make its prime margin call, it was still left out of pocket by the bank’s actions.

The MTN shares were sold in a private block sale, rather than a volume-weighted average price sale, which M1 said would have yielded a better price.

M1 estimated that a VWAP sale would have yielded 38.29 rand per share instead of the 24.30 rand per share that was achieved.

If the bank had sold the shares at the higher price, it would have needed to sell nearly five million fewer shares than it did to satisfy what it was owed by M1, the claim said.

If the court decided that the prime margin call was legitimate, M1 said it would claim nearly $39m for the cost of the shares and dividends it said it should have been left with if Credit Suisse had sold the MTN shares at the higher price.

M1 is being represented by law firm Quinn Emanuel. Cahill Gordon & Reindel is acting for Credit Suisse, according to court filings.

To contact the author of this story with feedback or news, email James Booth