Is Credit Suisse a Predatory Real-Estate Lender?

Several luxury resort owners are suing Credit Suisse for $24 billion for predatory lending, or lending that allegedly caused their bankruptcy. Among those in the class-action suit are Lake Las Vegas, the Tamarack Resort in Idaho, the Yellowstone Club in Montana and the Ginn Sur Mer in the Bahamas.

Duncan King, a spokesman for Credit Suisse in New York, told The Spokesman-Review, "We believe the suit to be without merit, and will defend ourselves vigorously."

None of the plaintiffs' attorneys are talking to the press, but they represent not only resort owners but homeowners, investors and property owners. Credit Suisse is accused of racketeering, money laundering, wire and mail fraud. The suite alleges that the bank, with appraiser Cushman & Wakefield, artificially inflated the value of the resorts with the intention of foreclosing on the debt-ridden properties.

If you remember my piece on the Tamarack Resort in Idaho, touted as an all-season luxury resort, you may see some problems with the Credit Suisse as predatory lenders argument.

Unfortunately, the resort relied on the sale of its 2,100 chalets and condos to finance itself -- nothing wrong with that unless you hit the housing bust and financing dries up, which it did. Only 250 units were actually built. The resort majority owner, Jean Pierre Boespflug, was also accused of overspending since the resort opened in late 2004, going through a $250 million construction loan and already owing another $20 million â€"- even Bank of America threatened to foreclose on its ski lifts. It also added expensive, elaborate and unnecessary developments (think plans for a $5 million 40-boat slip marina after a $2.8 million operating loss.)

But the biggest mistake the resort made was falling victim to the false optimism of the housing boom. Hotel and resorts saw the money to be made in real estate and then entered the real estate business at the peak of the market. Lenders seemed to be giving money away even to the most harebrained development and developers took it all with no questions asked (some came back for second and third helpings.) They either didn't foresee or understand the housing bust and credit crisis that was soon to follow, but now have plenty of time to reflect on their bad timing and subsequent losses.
Is Credit Suisse at fault for all this? Partially for lending to already debt-ridden customers, but no more than the owners and developers who happily took their money when they were already drowning in debt. Looking back now, investors hoping to finance spending by real estate sales now seems naive -- but at the time, with easy credit, abundant loans and rocketing real estate prices, it probably seemed like a win-win situation.

The truth is our financial system failed, regulation failed and most everyone, including investors and luxury property owners, failed to use common sense when faced with easy loans.