Greensill crisis spreads as Bank of England and German regulator take action – The Guardian

Banking

Uncertainty over lender’s future poses threat to investors, business borrowers and nearly 50,000 jobs

The crisis at the troubled lender Greensill Capital has spread after the Bank of England took action against one of the firm’s major business partners, and German regulators banned its local subsidiary from doing business and reportedly filed a criminal complaint against management.

It is the latest blow to the supply chain finance firm, which counts David Cameron as an adviser. Greensill, which allows businesses to borrow money to pay their suppliers, is expected to file for administration in the UK within days.


The uncertainty over the lender’s future poses a threat to a complex web of investors, business borrowers and nearly 50,000 jobs at firms that rely heavily on its loans, including across the UK steel industry.

On Wednesday, the German financial watchdog BaFin confirmed it had ordered Greensill Bank – which holds approximately €4.5bn (£3.9bn) in assets – to freeze any payments as there was an imminent risk that the bank would become over-indebted.

The moved followed a forensic audit in which BaFin raised concerns around bookkeeping, in particular on transactions linked to GFG Alliance Group, the steel empire headed by Sanjeev Gupta and employs thousands of people in the UK.


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.”

Unions have raised concerns about the potential risk to thousands of British steel and engineering jobs linked to Gupta’s British steel operations as the Greensill crisis grows.

The bank played a key role in financing Gupta’s sprawling business empire. Its prize asset is Liberty Steel, which employs about 5,000 in the UK, including at manufacturing plants in Rotherham, South Yorkshire and Newport.


Further questions were raised about GFG Alliance Group’s finances on Wednesday when the Bank of England ordered its subsidiary, GFG Alliance, to inject about £75m into Wyelands Bank, a lender in which Gupta is a shareholder. Wyelands will use the money to return cash to retail savings customers as part of a plan it is agreeing with regulators. The bank had more than 15,000 savers in Britain and £726m in deposits, according to its 2019 annual report.

Gupta said Wyelands had suffered “disruption caused by both Brexit and Covid-19”.

BaFin has filed a criminal complaint against Greensill Bank’s management over suspected balance sheet manipulation, according to the Financial Times. The regulator, which declined to comment, began direct oversight of operations at the bank on Tuesday.

Greensill said Greensill Bank took advice from its lawyers on how to account for assets on its books, but that it changed the classification of some assets after BaFin raised objections in late 2020 and early 2021.

“For the avoidance of doubt, Greensill Bank has at all times been transparent with its regulators and auditors about its approach to classifying assets and the methodologies for determining such classifications,” it said.

While the firm is registered in Bundaberg, the Australian hometown of its founder, Lex Greensill, the majority of its business is based in London, where it employs roughly 1,000 staff.

Greensill was thrown into crisis earlier this week after it failed to secure a court injunction in Australia that would prevent insurers from pulling coverage for loans extended to its business borrowers.


Its lawyers said the lapsed contracts would leave the firm unable to offer new loans to businesses, which may otherwise default and be forced to file for insolvency, putting 50,000 jobs around the world at risk.

Credit Suisse later blocked investors from withdrawing money from $10bn (£7.2bn) of funds linked to Greensill. The Swiss asset manager GAM Holdings revealed it was also closing its $842m Greensill supply chain finance fund owing to “market developments and resulting media coverage”.

Greensill is now holding out hope for a so-called pre-pack deal with the private equity group Apollo Global Management, which is expected to cherrypick the best assets out of administration.

However, Apollo is not expected to pick up a tranche of loans extended to Gupta, whose GFG Alliance empire has relied heavily on Greensill loans.

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