Greensill/Credit Suisse: finance dance | Financial Times

Finance company Greensill Capital styles itself as a scrappy innovator that unlocks cheap funding by turning invoices into bond-like investments. The disruptive finance group is now in disarray itself. Its problems underline the weaknesses of a superficially attractive business model.

Greensill on Tuesday sought insolvency protection in Australia, homeland of billionaire founder Lex Greensill and its parent company — although most of the business is based in London.

The trigger was Monday’s move by Credit Suisse to freeze $10bn of funds that invest in Greensill-sourced loans, following a partial pullback by insurers. The bigger problem is its overexposure to metals magnate Sanjeev Gupta — whose bid to borrow more funds from Canadian asset manager Brookfield has now collapsed. Concerns about the concentration of risk are heightened by the opacity of investments and an intervention by the German regulator. It wants a Greensill banking subsidiary to reduce its exposure to Gupta’s businesses.

Investing in the short-term debts of seemingly diversified companies appears low risk. Greensill also helped suppliers, which were particularly squeezed by late payment invoices in the wake of the financial crisis.

But the model has fundamental flaws. One arises from the accounting treatment of supply-chain finance. As it is not classed as debt, it often attracts heavily leveraged companies. Another is the complexity of the structures. It is hard for lenders financing these transactions to identify all the risks.

Greensill’s problems are a blow for Credit Suisse’s newish boss Thomas Gottstein, who was keen to wipe the slate clean after a year of damaging headlines. It is embarrassing that the Swiss bank upped its exposure last year by lending $160m to Greensill’s Australian holding company. Even then, there were plentiful signs of potential trouble. 

A precedent arose when Zurich-based GAM was forced in 2018 to liquidate a fund that had invested heavily in illiquid bonds that Greensill had arranged for Gupta’s companies. There had also been a row over conflicts of interest concerning SoftBank, the Japanese technology conglomerate. As well as investing in Greensill, it was putting money into the Credit Suisse funds that were in turn providing supply-chain finance to start-ups backed by SoftBank’s Vision Fund. The Vision Fund has already substantially written down its stake in Greensill.

Banks such as Credit Suisse are supposed use the asymmetries of information available to intermediaries to stay out of trouble. The Greensill debacle shows how easily enthusiasm for a client or financing technique can negate that advantage.