“The Best Way to Rob a Bank” – Ben Hunt‘s article about the tiny Bremer Bundaberg Bank that paid for Gupta buying Krupp is a delightfully illuminating summing up of the Greensill episode. Here are some highlights :
“I think that the collapse over the past week of Greensill Capital has a lot of systemic risk embedded within it, particularly as the fraudulent deals between Greensill and its major sponsors – Softbank and Credit Suisse – come to light. And that’s not even considering Greensill’s second tier of sponsors – entities like General Atlantic and the UK government – all of whom are up to their eyeballs in really dicey arrangements. …
By all rights, Greensill … should have been shot between the eyes in 2019. That’s when their “supply-chain finance” loans, in this case to the steel and energy companies of the UK’s “Savior of Steel”, Sanjeev Gupta, blew up Swiss asset manager GAM’s $11 billion flagship fund, the Absolute Return Bond Fund (ARBF).
It’s a story as old as capital markets … Greensill lent Gupta a lot of money, Greensill wined and dined and private jetted ARBF portfolio manager Tim Haywood, and so naturally Haywood bought as much of the Greensill-originated loans as humanly possible, topping out at 12% of ARBF NAV. LOL. …
The loans, of course, were not as they seem, Gupta’s companies were nowhere near as solid as they were represented, and GAM ended up firing Haywood and seeing their stock price crater. The GAM CEO got fired, lots of people lost lots of money … end of the road for Greensill, right? Nope…
Enter Masayoshi Son, CEO of Softbank, who ended up … becoming Greensill’s largest investor and diluting the prior largest investor – General Atlantic – from a 15% to a 7% position. And then the fun begins. Since that 2019 rescue, Greensill has lent billions of dollars to Softbank and General Atlantic affiliates (mostly Softbank, but GA looks plenty stinky here), loans that were then bought by Credit Suisse funds and laundered by Greensill’s German bank subsidiary. …
Here’s an example of how the scam worked. Again, it’s a story as old as capital markets. In early 2020, Greensill lent Softbank portfolio company Katerra $435 million. The company ran into … errr … operational difficulties, and Softbank ponied up $200 million in additional capital last December. For its part, Greensill wrote off the $435 million loan in exchange for … again, wait for it … 5% of common equity. LOL
The $9 billion valuation for Katerra (I am not making this up) was determined by Softbank, of course, and so the Greensill German bank subsidiary reported on its balance sheet that all was well. A $435 million senior loan, secured by trade receivables, was exchanged for a 5% equity position in a bankrupt company, with no loss reported. Seems fair!
As always, the best way to rob a bank is to own a bank. Second best way is to find a really big bank to buy up all the crap loans you originate, and that’s where Credit Suisse comes in. …
Money quote from an investor in this $10 billion Credit Suisse fund family, per the FT:
“You thought you were in an arm’s length arrangement where all your fellow investors had a pure financial interest,” he said. “Imagine you then found that, in fact, some of your co-investors were funding themselves.”
Yep, imagine that. Like I say, it’s a story as old as capital markets. Here’s a fun fact. Did you know that Credit Suisse has paid more than $9 billion since 2009 in legal penalties and settlements?
But then the house of cards came tumbling down. Something spooked Tokio Marine …, Credit Suisse professed shock … shock, I tell you! … as they suspended redemptions … announced a hard-hitting internal investigation and … dropped a dime to … BaFin … So here we are. The ECB is now asking whether or not the situation is “contained”.
Will it be contained? … I am certain that we will hear this week from … regulators that the situation IS, in fact, contained. And I’m also certain we’ll be treated to another barf bag Softbank earnings deck … Here are some of my personal faves from last year’s virtuoso performance …
Again, I am not making this up. …”…
Such fun!
Read all of Ben Hunt’s article and comments at epsilontheory
Just follow the money ….
Greensill updates (11/2021)
ft.com 20/11/2021 British Business Bank’s due diligence on Greensill ‘woefully inadequate’, says report
afr.com 11/10/2021 Big questions still hang over Greensill Capital and GFG by Jenny Wiggins
Seven months on from the collapse of Greensill Capital, founder Lex Greensill remains holed up at home in England trying to pay back creditors while GFG Alliance boss Sanjeev Gupta has been partying on the Greek island of Mykonos. Parts of Mr Gupta’s global metals empire have crumbled since his financing tap with the supply chain finance group was switched off suddenly …
cityam.com 3/10/2021 Swiss police raid Credit Suisse offices over Greensill Capital funds Amy O’Brien
efinancialcareers.com 29/7/2021 Credit Suisse says its MDs were incompetent by Sarah Butcher
bloomberg.com 28/7/2021 Credit Suisse’s Archegos Inquiry Rips Bank’s Due Diligence – Lender is set to release results of internal inquiry Thursday – Review finds bank faced huge exposure for very little revenue By Marion Halftermeyer, Heather Perlberg
…”New Chairman Antonio Horta-Osorio pledged a thorough review, calling Archegos and the Greensill Capital scandal that preceded it worse than anything he’d lived through over three-and-a-half decades working at banks….”…
afr.com/ 28/7/2021 Greensill Capital ‘flew too close to the sun’ – Greensill Capital’s lending against future invoices was “risky”, Fifo Capital chief executive Wayne Morris has told a federal parliamentary committee as the Labor opposition pushed for a full inquiry into supply chain finance. by Jenny Wiggins
finews.com 22/6/2021 Credit Suisse Dilemma Deepens as Repayments Stall by Peter Hody
…”The Swiss bank’s fund clients are being kept waiting for repayments from a failed supply chain product. Credit Suisse’s capital buffer doesn’t allow many concessions. The first money flowed quickly: Credit Suisse managed to return $4.8 billion of funds invested in supply chain notes to clients. This represents nearly half of the $10.1 billion the funds held right before the Swiss bank pulled the plug three months ago. When the Zurich-based bank made the second instalment of repayment ($1.1 billion), it said another would follow by month-end of early in June. As quarter-end nears, Credit Suisse has yet to do so: more than 1,000 fund clients – the bulk of whom are in its private bank – are still out of $5.2 billion. … The promise of a low-risk alternative to cash with interest enticed scores of wealthy clients, including reportedly Sheikh Hamad bin Jassim Al Thani, a prominent member of Qatar’s ruling family. The emirate’s sovereign wealth fund is the Swiss bank’s biggest shareholder, with a 5.2 percent stake. The web illustrates the dilemma Credit Suisse faces in sifting through the wreckage from its dealings with Australian financier Lex Greensill, founder of now-insolvent Greensill Capital. Its private banking arm – its raison d’être as a universal bank – is directly affected. Clients clamoring unsuccessfully for their money back are joining a slew of class-action suits against the bank. Another $4.9 billion in losses three weeks after the Greensill funds were halted simply adds fuel to the fire.
thetimes.co.uk 2/5/2021 greensill-family-used-banking-money-to-mash-rival-sweet-potato-farmers
efinancialcareers.com 24/3/2021 Credit Suisse scapegoats assemble!
It’s still not wholly clear how big the Greensill losses might be at Credit Suisse or how interested the regulators are going to get in questions of who knew (or did) what and when. That makes it a most nervous time, because until you know how serious the matter is, it’s hard to work out who is going to take the fall for it. Can things be quarantined and blamed on an intermediary like Marsh & McLennan, or are we in a situation where co-heads must roll?
At present, the blame exercise appears to be focusing in on a $160m bridging loan that CS made to Greensill last year. It was a time when CS was noticeably bearish about the global economy overall, and making substantial loan loss provisions across its business, but somehow convinced itself that a supply chain finance firm, which had already caused some serious damage to GAM was probably money good. Shortly after that loan was agreed, CS apparently began to aggressively market the Greensill funds to its clients and, as the Aussie road safety slogan goes, “the faster the speed, the bigger the mess”.
finews.com 24/3/2021 Credit Suisse: Madhouse on Paradeplatz by Claude Baumann
… “… Horta-Osório’s biggest black box for taking office, meanwhile, is Greensill, as long as it remains unclear how much damage CS will effectively have to bear. In the worst case, it could even cost CEO Gottstein his head, simply because he is the bank’s chief manager.
Ten years ago, the then UBS CEO Oswald Gruebel suffered a similar fate. He took responsibility for the fraudulent speculations of UBS trader Kweku Adoboli in London, even though he was not directly to blame at the time. In doing so, however, he saved his reputation, which still benefits him today.
Paradoxically, if Gottstein were to get into trouble in the further course of the Greensill affair, Koerner’s experience would make him the obvious choice to fill the gap. This would enable him to reach his goal in a roundabout way. In 2006, he had already recommended himself as the successor to the retiring head of CS, Gruebel. But at that time, the cup passed him by. American Brady Dougan was given preference. The rest is history.”
insurancejournal.com 19/3/2021 Greensill Capital Creditors, Led by Softbank, Submit More Than $1.4 Billion in Claims By Paulina Duran | March
bbc.co.uk 19/3/2021 Labour seeks probe over Cameron Greensill lobbying – The FT says public records show Greensill representatives had 10 virtual meetings between March and June last year with the two most senior officials at the Treasury as they sought access to a Bank of England loan scheme.
wsj.com 16/3/2021 Greensill– Owned Bank Declared Insolvent, Causing Losses for Small German Towns Local governments deposited money at the lender to escape negative interest rates at their usual banks – by Patricia Kowsmann _________________________________________________________________________________________________
finews.com 15/3/2021 Credit Suisse: Return to Founder’s Vision? by Claude Baumann Credit Suisse’s Asset Management Secret Sauce – As GAM Retreated, Credit Suisse’s Assets Surged – Greensill Raises Stakes in Credit Suisse’s Overhaul – The Swiss bank’s Greensill troubles highlight decades-long ups and downs with investment banking. New Chairman António Horta-Osório’s most pressing task is a strategy review.
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thisismoney.co.uk 14/3/2021 Sanjeev Gupta and Greensill Capital accused of using taxpayer-backed Covid support scheme to borrow eight times the maximum allowed
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https://www.wsj.com 13/3/2021 Behind Greensill’s Collapse: Detour Into Risky Loans Company’s founder pushed beyond safe but barely profitable supply-chain finance Duncan Mavin and Julie Steinberg
ft.com 12/3/2021 Greensill Capital borrowed almost €100m from its own bank before collapse
bloomberg.com 12/3/2021 Greensill Capital Close to Collapse After Athene Calls Off Deal By Lucca De Paoli and Luca Casiraghi
finews.com 12/3/2021 Credit Suisse Grapples With Greensill Blame – As GAM Retreated, Credit Suisse’s Assets Surged – David Solo’s Role in Credit Suisse-Greensill Link – Lex Greensill: Perils of the Perfect Banking Client
bloomberg.com 11/3/2021 Suisse Overruled Risk Managers on Greensill Loan By Marion Halftermeyer
Managers in London were sceptical about the $140 million loan – Lara Warner, head of risk and compliance, signed off .
Credit Suisse Group AG brushed off concerns from some risk managers about a $140 million loan to Greensill Capital that the bank extended a few months before the trade finance firm collapsed. Credit Suisse fell as much as 4.7% in early Friday trading. The shares have lost about 10% since the bank’s relationship with Greensill started to unravel two weeks ago.
bloomberg.com 10/3/2021 Credit Suisse Risks Backlash From Investors in Greensill Funds By Stephanie Bodoni
Loss recovery firm says around 10 investors have been in touch Bank last week froze the funds tied to financier Lex Greensill
wsj.com 9/3/2021 Metals Tycoon Gupta Seeks to Delay Payments to Greensill Collapse of finance firm sparks concern about thousands of steel jobs; entrepreneur seeks new funding
CityAM 10/3/2021 Greensill’s downfall: Ripples of panic as flaw in shadow banking spin led to firm’s tragic end byMichiel Willems
brontecapital.blogspot.com 8/3/2021/ Greensill – who is holding the bag? by John Hempton
ft.com 6/3/2021 Greensill implosion exposes risks of shadow banking
