The hundred million dollar scam of ‘Starbucks China’: the three largest banks in the world were surpassed, veterans in the financial field such as GIC or Singapore State Investment Fund were also cheated.

Prior to the accounting scandal that plunged stock prices and defaulted, billionaire founder of Luckin Coffee – the coffee chain dubbed China’s Starbucks Lu Zhengyao was the ideal customer of the home. Credit Suisse tape.

“I don’t remember how many times I had dinner with him in Beijing. This is a sneaky customer of our bank,” Tidajane Thiam, a former Credit Suisse leader, once shared about Lu Zhengyao. He praised Lu’s relationship with the bank: “He is our dream customer.”

However, the fall of Luckin this month is a blow to many “senior” in the global financial sector. It turned out that they were all tricked and the worst damage was Credit Suisse. The bank lost a major IPO in Hong Kong when Luckin’s scandal surfaced and reported a 5-fold increase in loan loss provisions at its Asia Pacific branch – mostly related. to Lu’s defaults. The bank is also conducting an internal investigation and more scrutiny of loans to Chinese companies that are growing more and more.

Luckin founder Lu Zhengyao.

While Lu has yet to be charged with any crime, an investigation report revealed that Luckin senior executives have allegedly claimed the company’s revenue of $ 310 million in 2019. This is indeed the case. a shocking news to global business circles and it shows a high risk to investment banks when executing deals in China. The second largest economy in the world, which is an important market in Credit Suisse’s strategy to acquire “rich” customers, are rich businessmen across Asia.

“Luckin is a microcosm of what can happen when lax issuance underwriting standards are applied to allow companies to pursue rapid growth. Luckin has many indications that a fast-growing, risky business, “said Mark Williams, a professor at Boston University and a former bank inspector at the US Federal Reserve.

CEO Thomas Gottstein – who took over Thiam’s position in February – refused to comment on Luckin’s case. This bank is still initially investigating the audit units and related lawyers. “There are too many stakeholders to draw conclusions soon,” he said.

Still, Gottstein has shown signs that Luckin’s stock collapse will not change the bank’s strategy of continuing to target wealthy entrepreneurs in China.

“It is a strategy that we believe is effective because it combines strength in the private and investment banking sectors. We have been very successful around the world.”

Worth mentioning is, Credit Suisse is not the only bank caught in Luckin’s scandal. Initial investors in this coffee chain include global investment giant GIC, Singapore state investment fund. Morgan Stanley is also part of the IPO guarantee group and also lends some money to Lu. There is also Barclay. All of these banks are in danger of facing a lawsuit from investors after the price of Luckin shares fell 91% from the highest level in January.

Credit Suisse is most influential because they were the leading bank in the sponsor group for Luckin IPO last year in New York. This is also the unit that receives up to 60% of the total cost that Luckin has to pay to the banks.

Luckin’s stock price has bottomed out recently.

Previously, Credit Suisse’s Helman Sitohang – Asia Pacific region leader, praised Lu as one of the bank’s success stories. Lu started Car Inc in 2007 and turned it into China’s largest rental company. Credit Suisse is also the guarantor for the company to IPO in 2014 along with becoming a consultant for 3 bond sales in the US totaling 1.2 billion USD.

Lu then set out to defeat Starbucks in China and expand Luckin into a formidable rival, having more than 4,500 stores in just two years. Over a period of time, Luckin became particularly attractive to investors as the stock tripled after only eight months of trading.

While the Luckin board said it was focusing on COO Jian Liu’s investigation, Lu admitted the company “went too far and too fast”, IPO after 18 months of business.

“I’m blaming myself. The rapid growth has created problems for the company.”

Luckin shares are currently suspended for waiting for examination. On April 6, the company’s stock was at 4.39 USD / 1 share, down from the highest level in January of 51.38 USD / 1 share. The company’s convertible bonds traded at just 24 cents, a record low.

When all is clear, Credit Suisse will continue to operate despite the short-term losses of Luckin. However, this bank will see this as “the quite expensive price of doing business”.