Lex Greensill assured staff of ‘enormous’ liquidity before collapse - Financial Times

Lex Greensill told employees that his company enjoyed “enormous” liquidity just three weeks before the finance firm collapsed into insolvency.

Greensill, a 44-year old Australian financier now at the centre of a growing corporate and political scandal, reassured staff in an internal video on February 15 that a crucial set of funds at Credit Suisse was robust, while explaining that the company was on the verge of finalising a new insurance policy.

Two weeks later, Credit Suisse froze its $10bn range of supply-chain finance funds, after insurance covering their assets expired, precipitating Greensill Capital’s downfall.

During the February recording, Greensill boasted of the “incredible strength” of these funds, which also included a smaller $842m range at Zurich-based asset manager GAM. “We’ve got enormous amounts of liquidity that are available to us, for our assets in the funds,” he said. “The markets are very much behind us.”

In its main supply chain finance business, Greensill provided financing to large companies to pay their suppliers. It bundled up these loans into notes that were placed into the funds at Credit Suisse and GAM.

The insurance was to guard against the — supposedly small — risk of one of the large corporate customers defaulting. Its presence allowed investors to put cash in the funds as if it were almost risk free.

Now that large customers including Sanjeev Gupta’s GFG Alliance have defaulted on the loans, there are arguments over whether the insurance was valid and Credit Suisse has said it is anticipating losses as the funds are wound up. There is expected to be a legal battle between the bank, investors, insurers, Greensill’s administrators and its corporate customers as to who bears the losses.

The details of the video, which have not been previously reported, underscore the confidence that Greensill projected to his staff, even as his company teetered on the verge of insolvency. The majority of Greensill Capital’s more than 1,000 employees were made redundant shortly after it filed for administration on March 8.

Greensill Capital and its administrator Grant Thornton declined to comment.

On the February 15 video, the Australian financier said that Greensill was working with its “friends at Marsh and Chubb” — the company’s insurance broker and one of its insurers — in order to make an important “tweak” to its policies. He said this would make the insurance “pretty much exactly the same” as a previous policy that had offered 100 per cent cover.

“The feedback that we’ve had from Chubb last week is that they’re very supportive of making that tweak,” he said.

Chubb declined to comment.

In a later witness statement to court on March 8, Greensill said that while it had signed a $3bn insurance policy with Chubb and other insurers in November, it had “never been used because they do not provide 100 per cent cover”.

Issues with Greensill’s insurance had been brewing for months. In July 2020, Japanese insurer Tokio Marine informed Greensill that it would not extend or renew any policies and had dismissed an underwriter during an investigation into his dealings with the firm. 

Greensill Capital also had escalating problems on other fronts when the message to employees took place.

Three days after the February 15 video, the Financial Times reported that Greensill was facing pressure from regulators to reduce the exposure of its German banking subsidiary to metals magnate Sanjeev Gupta. 

Behind the scenes, Germany’s banking watchdog BaFin had already engaged KPMG to carry out a special audit of Greensill Bank. On January 25, the accountancy firm flagged that it had uncovered facts that it believed could “endanger the existence of the bank”, according to documents seen by the FT.

On a previous address to staff in November, Greensill announced the freshly signed insurance contract with Chubb, describing it as a “big vote of confidence”. “That’s a real credit to the whole company,” he said.

During the November 23 message, Greensill also told employees that a series of investor meetings were “going really well”. The FT reported last month that these efforts to raise $1bn from private equity firms foundered after the company was unable to assuage concerns around several issues that had already surfaced in the press.

Additional reporting by Olaf Storbeck and Ian Smith

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2021-04-07 04:00:04Z
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