Greensill Capital Is Target of U.K. Government Probe

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    Greensill Capital Is Target of U.K. Government Probe

    The U.K.’s top financial regulator said it was investigating failed financial firm Greensill Capital, citing allegations of what it called “potentially criminal” matters.

    The Financial Conduct Authority said it was collaborating with other U.K. enforcement agencies and authorities overseas as part of its investigation into Greensill’s collapse. The disclosure came in a letter from the FCA to a U.K. parliament committee hearing testimony on Tuesday from Greensill founder Lex Greensill.

    Mr. Greensill made his first public comments since the firm tumbled into bankruptcy in March, saying he bears complete responsibility for the company’s collapse. “To all of those affected by this, I am truly sorry,” he said.

    A representative for the company declined to comment on the FCA’s investigation.

    More on Greensill

    Founded by Australian-born Mr. Greensill, the company billed itself as a technology startup that competed with traditional banks such as Citigroup Inc. and JPMorgan Chase & Co. Greensill’s goal was to offer supply-chain finance to companies that had fallen below the radar of traditional banks that preferred larger, more-established clientele.

    Greensill counted former U.K. Prime Minister David Cameron as an adviser and its main financial backer was Japanese tech conglomerate SoftBank Group Corp. Greensill had targeted a valuation of $7 billion last fall when it sought to raise equity from new investors.

    Mr. Greensill said he hired the former prime minister to help Greensill grow its brand awareness after a blue-chip company chose a different firm because it hadn’t heard of Greensill. Mr. Cameron regularly attended board meetings, Mr. Greensill said.

    The company plunged into crisis in March after it lost credit insurance that was crucial to its business. Credit Suisse Group AG CS -0.49% froze $10 billion in investment funds that Greensill relied on to fuel much of its business. Greensill’s bank was taken over by authorities in Germany and is under investigation there into its accounting for loans to a major client.

    The startup’s business model required complex financial engineering. It made supply chain loans to companies, then packaged them up into notes, selling those on to investors, which served as off-balance-sheet financing for Greensill.

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    The announcement of a government investigation ramps up pressure on Mr. Greensill, who has been working with the company’s bankruptcy advisers to salvage parts of the business.

    The FCA’s letter cited “a number of allegations have been made in the press regarding the circumstances of Greensill’s failure, some of which are potentially criminal in nature.”

    Some of Greensill’s blue-chip clients included AstraZeneca PLC and Ford Motor Co. Greensill has also extended financing to lesser-known companies, including small startup businesses and companies that are considered higher-risk borrowers.

    Mr. Greensill defended the business model of supply-chain finance, likening it to a checking account for companies. “Tens of millions of businesses have benefited from that,” he said, referring to the industry that has built up in recent years.

    But Greensill went beyond bread and butter supply chain finance, The Wall Street Journal has reported. Much of the company’s business was extending loans to a small circle of borrowers close to Mr. Greensill, including U.K. steel magnate Sanjeev Gupta, who the Journal has previously reported was the company’s biggest client by revenue.

    Mr. Greensill said he had been introduced to Mr. Gupta in 2015 by an executive at an insurance company. Mr. Gupta was an early shareholder, but sold the shares to avoid a conflict when the business grew, Mr. Greensill said.

    Mr. Greensill said he regretted that the business had become too concentrated on a single customer.

    Members of the parliamentary committee asked Mr. Greensill about the company’s use of so-called future receivables, or loans made on the basis of future business. One committee member likened the use of them to fraud.

    Members of a parliamentary committee pressed Lex Greensill on various aspects of his business on Tuesday in London.

    Photo: Kieran Cleeves/Zuma Press

    Mr. Greensill denied he was a fraud and defended the use of future receivables. He said the business was properly described, and that investors understood what they were purchasing. He said the future receivables were secured against real assets.

    The Wall Street Journal has reported that Credit Suisse marketed the supply-chain finance investments as safe products based on transactions that had already occurred.

    Mr. Greensill also said the firm was let down by its biggest insurer, Tokio Marine Holdings Inc., whose yanking of coverage of Greensill’s loans uncorked the series of events that culminated in the firm’s unraveling. Committee members pressed him on the fact that Greensill had been informed about the insurance problems six months before coverage was pulled on March 1.

    “We had an overreliance on insurance generally,” he said. “And we did too much of our insurance with one provider.”

    Mr. Greensill said all investors were given real-time information regarding the coverage provided by insurers.

    Committee members asked Mr. Greensill about his relationship with SoftBank, whose Vision Fund invested nearly $1.5 billion in the company in 2019. SoftBank also put money into the Credit Suisse funds, which then bought notes from Greensill that made loans to other Vision Fund portfolio companies. The circular relationship sparked an internal review at Credit Suisse.

    Mr. Greensill acknowledged a potential conflict of interest but said Greensill prevented shareholders from being involved in decisions on whom to extend credit.

    Write to Julie Steinberg at [email protected] and Duncan Mavin at [email protected]

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    Published at Tue, 11 May 2021 19:06:00 +0000

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