The Vatican has sold charitable assets to pay down a €242m loan that was partly used to fund a luxury London property development it says caused the Catholic Church “huge losses”, people with direct knowledge of the loans said.

The loan provided by Credit Suisse was secured against a portfolio of securities that the Holy See has described as “derived from donations” held in the Swiss bank’s Lugano branch, according to documents seen by the Financial Times.

News that Catholic charitable funds were mortgaged to make risky financial investments adds to recent revelations that Vatican officials who oversaw the donations were engaged in complex financial engineering, some of which the Holy See has said resulted in losses.

Last month Giovanni Angelo Becciu, the powerful cardinal who oversaw these investments between 2011 and 2018, was asked to resign by Pope Francis due to allegations of “embezzlement” against him not linked to the loans or London investment. 

Cardinal Becciu denies any wrongdoing and has said he will defend himself against all allegations. The Vatican has not charged him with any crime. The Cardinal has repeatedly denied that charitable assets were invested in the London property development. However, he did not address questions from the FT about donations being used as collateral for loans used to fund investments such as the real estate development.

The Vatican, which declined to comment, was not forced to sell assets by Credit Suisse but chose instead to voluntarily reduce its debts to the bank, a person briefed on the transactions said: “The Holy See is trying to reduce its credit exposure.”

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Half the net assets the Vatican held in a €530m portfolio at Credit Suisse were accounted for by one Luxembourg-based fund called Athena Capital, according to financial reports seen by the FT. Credit Suisse was the custodian bank for the portfolio but did not advise on investments.

The Athena fund in turn invested the majority of the money it managed for the Holy See into a plan to develop an office building in London’s Chelsea area called 60 Sloane Avenue into luxury apartments, according to its accounts. 

Earlier this year the Vatican’s state news outlet published allegations made by Holy See prosecutors that the investment with Athena had resulted in “huge losses”, and that Raffaele Mincione, the fund’s owner, had “administered the financial resources invested in a conflict of interest” and in “speculative initiatives” — which he has denied.

Mr Mincione denies wrongdoing in his management of the Vatican’s money, and does not believe the investment in the London property was risky, speculative or inappropriate for the Vatican. He has launched legal action against the Holy See in London to obtain a ruling that he, Athena and his other companies had “acted in good faith” in their dealings with the Vatican, as well as indemnity and possible damages.

Enrico Crasso, who managed the Vatican’s money held on deposit at Credit Suisse through his Switzerland-based boutique advisory firm, has said he was not aware that the money was linked to charitable donations.

“When Becciu asked for the financing for the London building he presented a letter from Cardinal Pietro Parolin, secretary of state, saying that Becciu had the full powers to leverage the entire assets,” Mr Crasso said in an interview with Corriere della Sera newspaper earlier this month.

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In June Vatican police arrested Gianluigi Torzi, a business associate of Mr Mincione’s, charging him with “extortion, embezzlement, aggravated fraud and self laundering”, for his role in negotiating a 2018 purchase of the London building outright from Athena on behalf of the Holy See.

The Holy See alleges the deal was struck at an “enormous disproportion between the value of the property . . . and the price paid”. Mr Torzi has denied wrongdoing, and his lawyers have said the arrest was the result of “a major misunderstanding”.

Via Financial Times