German financial regulator refers Greensill’s cases to criminal prosecutors
Struggling financial start-up Greensill Capital plans to file for bankruptcy in the UK this week, as it simultaneously heads for a deal to sell its operating business to
according to people familiar with the matter.
Also on Wednesday, in a dramatic escalation of Greensill’s problems, Germany’s leading financial regulator BaFin referred issues related to the company’s banking unit, Greensill Bank AG, to criminal prosecutors, according to a spokesperson for the prosecutor’s office. from Bremen. Details of the complaint sent to prosecutors could not be known; it is up to prosecutors to decide whether to lay charges.
BaFin also said in a statement that it banned the bank’s activity after an audit was unable to provide proof of the receivables purchased from the GFG Alliance group, which is the umbrella organization of the British steel magnate Sanjeev Gupta. Receivables are receivables that businesses have on customer payments and can be used as collateral for a loan.
Mr. Gupta is a former shareholder of Greensill and its companies, which span over a dozen countries, depended on funding from Greensill. The small Bremen-based bank had 4.5 billion euros, or around $ 5.4 billion, in assets at the end of 2020. BaFin said its closure posed no risk to financial stability anymore. large.
In a statement, Greensill said the bank had “at all times been transparent with its regulators and auditors” about how it classifies assets.
Greensill’s deal with Apollo, which could be done by the end of the week, would be part of a Greensill insolvency, similar to the U.S. bankruptcy process, people said.
The Wall Street Journal previously reported the two parties were in talks for an agreement that would net Greensill about $ 100 million. Through the acquisition, Apollo would take over the core operations of Greensill. It would use its insurance subsidiary, Athene Holding Ltd., and other insurance clients to replace around $ 7 billion in financing for corporate clients that had previously been arranged by Greensill. Much of this capital came from a series of investment funds managed by
Founded in 2011 by the former
and Citigroup Inc. banker Lex Greensill, the startup received $ 1.5 billion in investment of
SoftBank Group Body
Giant Vision Fund. The collapse of a business once valued at $ 4 billion turns into a warning about the high valuations of startups trying to disrupt traditional banking.
Greensill offers what’s known as supply chain finance, a type of short-term cash advance that gives businesses more time to pay suppliers. These include blue-chip companies and government agencies, such as the UK’s National Health Service, AstraZeneca PLC and Ford Motor Co.
He was plunged into crisis on Monday when Credit Suisse froze $ 10 billion in investment funds that Greensill relies on to secure supply chain finance deals. Its banking subsidiary is under daily supervision in Germany. The company confirmed on Tuesday that it was in talks for a sale.
Greensill competes directly with JPMorgan Chase & Co. and Citigroup. Apollo has reached out to major Greensill customers in recent days to reassure them about the possible transition, people say.
Greensill’s original goal was to offer supply chain finance to small and medium-sized businesses that had fallen under the radar of traditional banks that preferred a larger, more established customer base. He praised his agility and financial chemistry in structuring transactions, access to a large pool of investors and relationships with new technological platforms to close deals.
Supply chain finance has been around for decades, but has gained ground after the financial crisis as a way for companies to get more from their balance sheets. Businesses do borrow to pay their bills, although the transactions are not classified as traditional debt according to accounting rules.
In a typical supply chain finance deal, Greensill pays a company’s suppliers sooner than expected, but at a lower price. The company then pays Greensill the full amount later. The supplier gets paid sooner, the company has more flexibility on their cash flow, and Greensill ends up with a small profit.
Instead of keeping cash advances – which are typically renewed every 60 or 120 days – on its balance sheet like a traditional bank, it turned them into bond-like securities.
Credit Suisse funds invested exclusively in these Greensill-generated securities, essentially creating a well of capital to be exploited by Greensill. The Swiss bank sold the funds to its network of pension funds, wealthy clients and corporate treasurers seeking slightly higher returns than they could get from traditional money market funds. Credit Suisse said the funds had more than 1,000 investors.
Credit Suisse Greensill funds that stuck to good-quality borrowers were aiming for yields between 0.8% and 1.5% above benchmark short-term interest rates, according to documents filed with the investors. A smaller, riskier high-income fund, which shifted to less established companies, was aiming for 3.5% gains above those benchmarks.
To reassure investors about the assets, Greensill obtained credit insurance from several large insurance companies, which would pay in the event of default by any of the underlying customers.
Credit Suisse has frozen funds the same day Greensill’s credit insurance providers allowed policies covering more than $ 4 billion in assets to expire on March 1, according to a Supreme Court ruling in New South Wales, Australia, where is based the ultimate parent company of Greensill. Greensill sued insurers unsuccessfully to maintain coverage.
Credit Suisse said in a Q&A published online that expiration of insurance applies to new assets. The existing assets in the funds are hedged until maturity. This indicates that investors in the funds can remain protected if some of the underlying borrowers default.
The main credit insurers are units of
A Tokio Marine spokesperson did not respond to requests for comment.
Credit Suisse’s decision to freeze funds has also been taken concerns about the fund’s exposure to Mr. Gupta, who has long relied on Greensill for loans, the Journal reported earlier this week.
The Apollo deal would exclude companies linked to Mr. Gupta’s operations. Certain assets related to the steel activities of Mr. Gupta are held in the Credit Suisse fund. Greensill owns other Gupta-related assets elsewhere, including at its German banking subsidiary.
The Apollo deal would not include the German bank, which has been placed under the direct supervision of German regulators in recent weeks, the Journal reported on Tuesday. Athene Holding Ltd., an insurance company affiliated with Apollo, and other insurance clients, would fund the business, the Journal reported earlier.
Earlier this year, Greensill had sought outside sources of fresh capital, hoping to raise around $ 1 billion, describing the fundraising as an expansion of its business rather than a rescue.
He was in talks at one point with European private equity firm TDR Capital, according to people familiar with the potential transaction. Talks collapsed after TDR learned that German regulators were concerned about Greensill’s operations, people said.
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