Greensill Capital: The financial scandal that just won’t go away
On Friday, it was announced that Credit Suisse will pay out a further $750m to backers of its Greensill-linked supply chain finance funds.
Thus far, the lender has clawed back $6.1bn of the $10bn of its funding supported by collapsed supply chain finance firm Greensill Capital, up $200m on its previous update.
The news follows, at the end of June, the announcement from The Financial Reporting Council, when it confirmed it had launched the latest in a series of official investigations into events surrounding Greensill Capital and one of its biggest borrowers, Sanjeev Gupta’s GFG Alliance.
Greensill Capital is increasingly becoming one of those financial scandals that simply won’t go away. But how did we get here? Let’s dive in.
First of all, who is Sanjeev Gupta? Gupta was born in India as the son of a wealthy businessman. Educated in England he was thrown out of his Cambridge halls for setting up a company from the accommodation.
He built his name trading commodities around the world, but nearly a decade ago he entered the British steel industry for the first time. Since then he has snapped up many struggling steel businesses in the UK and around the world, earning him his “saviour of steel” nickname in the British press.
Gupta’s role in Greensill
He had no role at Greensill Capital, but he was one of the company’s biggest borrowers. In March, Greensill’s lawyers revealed the collapsed financing company had exposure of around £3.6bn to Gupta’s GFG Alliance after providing many loans.
GFG and Greensill became heavily reliant on each other as a result, but who or what is GFG Alliance, you may wonder?
GFG is a loose collection of industrial companies linked to Mr Gupta and his father, Parduman K Gupta. Covering companies from renewable power to commodity trading and steelworks, GFG employs around 35,000 people across 30 countries, including thousands at Liberty Steel.
It has never published consolidated accounts.
David Cameron
Cameron worked as an adviser to Greensill. Early in the Covid-19 pandemic, he lobbied former Government colleagues, sending dozens of texts and emails and making many phone calls.
He tried to convince ministers to allow Greensill, and other supply-chain financiers, to sign up to the Covid Corporate Financing Facility (CCFF), a BoE loan scheme designed to help big companies during the pandemic.
The attempts, which would have seen Greensill issue loans on behalf of the scheme, were ultimately unsuccessful.
However, Greensill did get involved in the Government-backed coronavirus large business interruption scheme (CLBILS). Last week, the Financial Times reported that many of Greensill’s CLBILS loans went to GFG companies.
How did Greensill Capital collapse?
Greensill’s collapse was the culmination of a long process, but the final nail in the coffin was when its main insurer walked away.
Greensill had supplied loans to many customers. These were then lumped together and sold off, via a Credit Suisse fund, to outside investors, who would buy a share in the loans and cash in when they were paid back. These loans were insured.
But insurer Tokio Marine decided not to renew the insurance following concerns that one of its employees might have acted beyond his authority. Lex Greensill later told MPs this event “ensured Greensill’s collapse”.
Investigations
Currently, several probes are looking into what happened around Greensill and GFG, such as:
- MPs on the Treasury Select Committee, Public Accounts Committee, Public Administration and Constitutional Affairs Committee, and Business, Energy and Industrial Strategy Committee are all looking into issues from different angles.
- The Serious Fraud Office has launched an investigation into GFG and its financing arrangements with Greensill.
- The National Audit Office is probing Greensill’s involvement in a Government-backed pandemic loan scheme, which is also being looked at by the British Business Bank.
- Lawyer Nigel Boardman is probing the Government’s use of supply chain finance.
- The Cabinet Office is reviewing the Lobbying Act.
- The Financial Conduct Authority (FCA) is probing “potentially criminal” allegations about the failure of Greensill.
- The German financial regulator has filed a criminal complaint against Greensill Bank, a Germany-based subsidiary.
- At the end of June, the Financial Reporting Council (FRC) said it would probe Greensill and Wyelands’ auditors.
Wyelands
Firstly, what is Wyelands again? In 2016 Gupta bought Tungsten Bank, promising to make sure much-needed finance would get to the UK’s commodities and steel industry. He later renamed it Wyelands after an estate he owns in Wales.
The bank had since 2018 faced concerns that it might have broken rules on lending to “connected entities”. This meant it might have been lending to companies ultimately owned by Gupta in a way that could have broken rules.
In March this year, after working with the BoE, Wyelands said it had returned cash to all depositors.
Credit Suisse
The Swiss bank has been mired in controversy in recent months due to its exposure to the collapse of Greensill.
Investors are facing billions of dollars in losses, with some expected to sue the bank over alleged mismanagement of funds.
And the lender has come under extra fire for its personal relationship with Gupta and one of Greensill’s clients.
Former executives at the bank reportedly said recently that senior leadership wooed Gupta, offering him a string of services as his private wealth manager, as well as VIP treatment. They now probably wish they had never done so.