Greensill in crisis as regulators step in to freeze payments
Greensill, the Softbank-backed supply chain financer, is edging closer to a collapse as its backers pull out and regulators cease operation of one of its subsidiaries.
Advised by former British prime minister David Cameron, the fintech has long been under the microscope. In January 2020, Australia’s ombudsman launched a formal review into Greensill’s practices, highlighting how it facilitates major firms taking advantage of smaller suppliers.
Now the firm, which operates in the UK, Europe and Australia, is approaching bankruptcy. Key backers Credit Suisse, Tokio Marine and GAM Holding have withdrawn support totalling around £8 billion. This means some £5.5 billion in loans to customers sit without insurance.
Withdrawals of funds follow the Financial Times’ revelation that Greensill’s balance sheet had abnormally exposed itself to the risks of a single client – UK-based steel tycoon Sanjeev Gupta.
GFG Alliance, Gupta’s empire, has stopped paying its loans back to Greensill, according to the FT. GFG unsuccessfully approached a number of other firms for loans – putting some 50,000 employees’ jobs at risk across the steel industry.
According to reports, Greensill could file for administration in the UK within days. Private equity group Apollo Global Management is dubbed to rescue Greensill’s healthiest assets out of the anticipated administration.
Regulators weigh in
On Wednesday, German financial regulator BaFin ordered Greensill’s Bremen-based bank subsidiary to freeze all payments.
The bank, which holds £3.9 billion in assets, was accused by the regulator of carrying such risk it could become over-indebted. BaFin had carried out a forensic audit into the division’s bookkeeping.
In a statement, the regulator said: “BaFin found that Greensill Bank AG was unable to provide evidence of the existence of receivables in its balance sheet that it had purchased from the GFG Alliance Group.
“For this reason, BaFin has already taken extensive measures to secure the bank’s liquidity and to limit risks for Greensill Bank AG and has appointed a special representative for the bank.”
BaFin also filed a criminal complaint against Greensill Bank’s management due to suspicions the bank division had manipulated its balance sheet, according to the FT.
The same day, the UK’s Prudential Regulatory Authority (PRA) ordered GFG Alliance to inject £75 million into Wyelands Bank, a lender that GFG Alliance/Gupta bought four years ago.
The regulator wants Wyelands to use the money to return cash to retail savings customers. The bank says on its website that it “will close its deposit accounts by 24 March and will be returning funds to its depositors”.
In 2018, Gupta purchased another bank, the UK operations of Nigeria’s Diamond Bank. This was a short-lived venture – the bank, briefly known as Commonwealth Trade Bank, permanently shut its doors less than two years later.