Updates from Greensill Capital

The German financial watchdog has directly overseen the day-to-day operations of Greensill Bank, with the lender’s struggling parent company warning that its $ 4.6 billion loss of credit insurance could lead to a wave of defaults and 50,000 job losses.

BaFin has appointed a special representative to oversee Greensill Bank’s activities in recent weeks, according to three people familiar with the matter, as concerns grew over the state of the lender’s balance sheet.

The Germany-based lender is part of a group – advised by former British Prime Minister David Cameron and backed by SoftBank – that stretches from Australia to the UK and is now fighting for its survival.

On Monday evening, Greensill was denied an injunction by an Australian court after the financial group tried to prevent its insurers from withdrawing their coverage.

Lawyers for Greensill said that if policies covering loans to 40 companies were not renewed, Greensill Bank would be “unable to provide additional funding for the working capital of Greensill clients”, some of whom were “likely to fail. become insolvent, defaulting on their existing facilities ”. .

This in turn could “trigger further negative consequences”, endangering more than 50,000 jobs worldwide, including more than 7,000 in Australia, the company’s lawyers told the court.

A judge ruled Greensill delayed his application “despite the fact that the underwriters’ position was clear eight months ago” and dismissed the injunction.

Greensill Capital is in discussions with Apollo over a possible bailout deal, involving the sale of certain assets and operations. He also sought protection from Australia’s insolvency regime.

Greensill received a heavy blow on Monday when Credit Suisse suspended $ 10 billion in funds linked to the company’s supply chain finance, citing “considerable uncertainties” over the valuation of fund assets. A second Swiss fund manager, GAM, also broke ties on Tuesday. Credit Suisse’s decision came after credit insurance expired, according to people familiar with the matter.

While the bulk of Greensill’s business is based in London, its parent company is registered in the Australian town of Bundaberg, the hometown of its founder Lex Greensill.

In Germany, where Greensill has owned a bank since 2014, BaFin, the financial supervisory body, relies on an article in German banking law which authorizes the regulator to parachute into a special representative responsible for “exercising activities of an establishment and assign [them] the required powers ”.

The regulator has conducted a special audit of Greensill Bank over the past six months and may soon impose a moratorium on the lender’s operations, the people said.

Concern is growing among regulators about the quality of some of the debt Greensill Bank holds on its balance sheet, two people said. Regulators are also looking at the insurance that the lender has declared to be in place for its receivables.

Greensill Bank provided much of the funding to GFG Alliance, a sprawling empire controlled by industrialist Sanjeev Gupta.

“A regulatory audit of the bank has been underway since the fall,” said a spokesperson for Greensill. “This regulatory audit report did not specifically reveal any wrongdoing within the bank. We maintain an ongoing and constructive dialogue with all regulators in all of the jurisdictions in which we operate. “

The spokesperson added that all bank assets are “unequivocally” covered by insurance.

Greensill, a 44-year-old former investment banker, said the idea for his company was shaped by his experiences growing up on a watermelon farm in Bundaberg, where his family endured financial hardships when large companies took over. delayed their payments.

Greensill Capital’s main financial product – supply chain finance – is controversial, however, as critics have said it could be used to hide growing corporate borrowing.

Even if a deal is made with Apollo, it could still effectively wipe out shareholders like SoftBank’s Vision Fund, which paid $ 1.5 billion in the company in 2019. SoftBank’s $ 100 billion tech fund has already significantly depreciated the value of its stake.

Gupta, a British industrialist who is one of Greensill’s main clients, separately saw an attempt to borrow hundreds of millions of dollars from Canadian asset manager Brookfield collapse.

Credit Suisse executives are particularly concerned about the exposure of supply chain finance funds to opaque canvas aging of industrial assets, people familiar with the matter said.

Flight reported earlier Tuesday that Credit Suisse has larger and wider exposure to Greensill Capital than previously thought, with a loan of $ 160 million, according to two people familiar with the matter.

Additional reporting by Laurence Fletcher and Kaye Wiggins in London