If details seemed sparse in last month’s sudden disintegration of the proposed merger between neobank American Challenger and Patriot National Bank, one missing component, a court filing indicates, appears to be Credit Suisse.
American Challenger sued Switzerland’s second-largest bank and its Cayman Islands branch last month in New York Supreme Court, accusing Credit Suisse of failing to conclude the sale of a commercial loan portfolio worth $650 million.
“Credit Suisse’s decision to flagrantly renege on its written and binding agreement to sell these critical assets to American Challenger [resulted] in the failure of a merger that American Challenger was poised to complete,” the neobank wrote in its filing, according to the Cayman Compass.
American Challenger said it thought the commercial loan purchase agreement was concluded in January after months of negotiation. Under that deal, Credit Suisse committed to sell the portfolio, and American Challenger would have hired employees from Credit Suisse subsidiary Sector Financial to continue administering the loans after the sale.
Credit Suisse, however, said it had not received internal approval for the sale. Lawyers for American Challenger founder Felix Scherzer said such approval is pretext, meaning Credit Suisse is in breach of contract.
“We view this lawsuit as one which is entirely meritless, and we will defend ourselves vigorously,” Credit Suisse told finews.asia.
Scherzer served as global head of mergers and acquisitions for Credit Suisse’s financial institutions group from 2015 to 2019.
American Challenger aims to recover “hundreds of millions of dollars in damages,” according to the Cayman Compass.
Indeed, the $650 million portfolio would have represented a sizable pillar to the somewhat complicated merger.
Under the transaction first proposed in November, Patriot’s holding company would have had to execute a capital raise of at least $875 million. Investors including Oaktree Capital Management and Angelo, Gordon & Co. would have provided $540 million toward newly issued Patriot stock in exchange for the right to nominate a director to Patriot’s board. Patriot had planned to raise the remainder.
Patriot received conditional approval June 30 from the Office of the Comptroller of the Currency (OCC) to implement American Challenger’s business plan.
Combining with Patriot would have given American Challenger faster access to a banking license. American Challenger applied for federal deposit insurance in November 2020.
A Patriot press release last month indicated the bank and American Challenger “remain in active discussions regarding a modified transaction,” but “it is uncertain whether a new agreement can be reached.”
American Challenger, in a separate release the following day, emphasized its on-the-market status, saying it is exploring a sale of the company and has hired Citi to advise. It also teased its “fully developed” brand identity, Cache — complete with a marketing and launch plan.