Lex Greensill assured staff of ‘huge’ liquidity before collapse

Lex Greensill told his employees his company had “huge” cash flow just three weeks before the finance company went bankrupt.

Greensill, 44 Australian financial now at the center of a growing company and political scandalreassured staff in an internal video on February 15 that a crucial set of funds at Credit Suisse was strong, while explaining that the company was close to finalizing a new insurance policy.

Two weeks later, Credit Suisse frozen its $ 10 billion lineup of supply chain finance funds, after insurance covering their assets expired, precipitating the downfall of Greensill Capital.

During the February recording, Greensill bragged about the “incredible strength” of these funds, which also included a smaller range of $ 842 million at Zurich-based asset manager GAM. “We have huge amounts of cash for our assets in the funds,” he said. “The markets are very much behind us.”

In its core supply chain finance business, Greensill has provided finance to large companies to pay their suppliers. He consolidated these loans into notes which were placed in the funds of Credit Suisse and GAM.

The insurance was intended to protect against the risk – supposedly low – of default by one of the large corporate clients. Its presence has allowed investors to put liquidity into the funds as if they were virtually risk-free.

Now that large clients, including Sanjeev Gupta’s GFG Alliance, have defaulted on loans, there are arguments over the validity of the insurance and Credit Suisse has said it expects losses on liquidation of funds. . There should be a legal battle between the bank, investors, insurers, directors of Greensill and its corporate clients over who will bear the losses.

Details in the video, which have not been reported previously, underscore the confidence Greensill projected in his staff, even as his company was on the brink of insolvency. The majority of Greensill Capital’s more than 1,000 employees were laid off shortly after it filed for administration on March 8.

Greensill Capital and its director Grant Thornton declined to comment.

In the February 15 video, the Australian financier said Greensill was working with his “friends at Marsh and Chubb” – the company insurance broker and one of its insurers – to make a significant “adjustment” to its policies. He said it would make the insurance “about exactly the same” as a previous policy that offered 100 percent coverage.

“The feedback we got from Chubb last week is that they are very supportive of this change,” he said.

Chubb declined to comment.

In a subsequent statement from a witness in court on March 8, Greensill said that although she signed a $ 3 billion insurance policy with Chubb and other insurers in November, she did not “Never been used because it did not provide 100% coverage”.

Problems 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 terminated an underwriter during an investigation into its relationship with the company.

Greensill Capital also had growing problems on other fronts when the employee message took place.

Three days after the February 15 video, the Financial Times reported that Greensill was in the face of pressure regulators to reduce the exposure of its German banking subsidiary to metal tycoon Sanjeev Gupta.

Behind the scenes, German bank watchdog BaFin had previously hired KPMG to perform a special audit of Greensill Bank. On January 25, the accounting firm reported that it had discovered facts which it said could “endanger the existence of the bank”, according to documents consulted by the FT.

In a previous address to staff in November, Greensill announced the newly signed insurance contract with Chubb, describing it as a “big vote of confidence.” “It’s a real honor for the whole company,” he said.

During the November 23 post, Greensill also told employees that a series of investor meetings were “going very well.” The FT reported last month that these efforts to raise $ 1 billion private equity firms collapsed after the company was unable to allay concerns over several issues that had already surfaced in the press.

Additional reporting by Olaf Storbeck and Ian Smith

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