Teetering financial services house Greensill Capital has capped off an extraordinary week of bad news with revelations that it waited until only recently to tell its financial backer Credit Suisse it had no insurance for over $US4.6 billion ($5.9bn) worth of assets.
A senior source at Credit Suisse told The Age and The Sydney Morning Herald the bank had not been told by Greensill about its long running insurance issues despite the Swiss lender running a series of funds covering $10 billion of the supply chain group’s assets.
Credit Suisse assured investors in the fund that the assets were fully insured by A-grade insurers as recently as January 29, according to fund documents seen by The Age and The Sydney Morning Herald.
“The underlying credit risk of the notes is insured by highly rated insurance companies,” the updated investor note for the CS (Lux) Supply Chain Finance Fund states.
Credit Suisse also acted as one of Greensill’s financial advisers during a roadshow for its planned initial public offering in October, which would have valued the group at $US7 billion ($9bn). However, the bank was unaware at the time that Greensill had already been formally notified its insurance would not be renewed, sources said. Greensill was contacted for comment.
The depth of the Anglo-Australian supply chain financier’s insurance, customer and funding issues have rocked its main financial backer Credit Suisse which froze a suite of Greensill-related funds this week and forced Greensill to seek protection under Australian insolvency laws.
Greensill’s looming insurance scandal has now also embroiled IAG after the supply chain financier launched court action against its insurers over the cancellation of its policies.
On Friday, in a further blow for the flailing Greensill, one the group’s biggest customers – billionaire steel tycoon Sanjeev Gupta’s GFG Alliance – reportedly stopped making payments to Greensill. GFG is a group of companies tied to Mr Gupta that hold a vast array of assets including the Whyalla steel mill. GFG declined to comment.
Greensill, which was founded in Bundaberg in 2011, is expected to shortly announce a sale of the majority of its business to US group Apollo Asset Management.
The group burst onto the scene ten years ago with a service that allows suppliers to big companies to be paid earlier for a fee. These financing arrangements are then packaged up and rolled into securities that are sold by Credit Suisse. The assets underpinning these securities are insured against non payment by clients to Greensill.
But this week it all came unstuck with Credit Suisse freezing these funds, stopping the flow of money through Greensill. The group’s German registered bank was shuttered by financial regulator BaFIN this week and Greensill has been hit with criminal charges over alleged accounting irregularities, which it strenuously denies.
Greensill also revealed this week that it has been aware it had lost the support of its insurers when it launched ultimately unsuccessful action in the NSW Supreme Court this week seeking to force its insurers to renew the policies.
Documents filed in that proceeding show Greensill was informed in July of the likely non-renewal of its policies and given formal notice in September, but sources said it never told the Swiss bank of its troubles.
Greensill’s policies were set up by Bond & Credit Company in February 2019 when it was under the ownership of IAG and Japanese insurance group Tokio Marine. IAG has since sold out of the business and claims to no longer carry any of the risk associated with the policies.
It was revealed this week that the prudential regulator has been monitoring IAG over its potential multi-billion exposure to Greensill since at least November last year, despite IAG’s claims it had no direct exposure.
BCC is now investigating its former head of trade credit Greg Brereton’s dealings with Greensill, according to emails between BCC and Greensill that were tendered as evidence in NSW Supreme Court matter.
“The Bond & Credit company has commenced an investigation in relation to the dealings between Greensill Capital and Greg Brereton. The investigation will be considering endorsements issued in relation to Greensill policies as well all of Greg Brereton’s other dealings with Greensill where he acted outside of the scope of his authority,” BCC director Toby Guy wrote to Greensill in August. Mr Guy revealed it was investigating policies covering $10 billion that was arranged by the former employee.
Counsel for Greensill, Ruth Higgins, SC, told the NSW Supreme Court this week that as many as 7,000 jobs in Australia and 50,000 globally would be at risk if it did not have insurance.
In recent times Greensill has lost key Australia clients Telstra and CIMIC’s UGL after concerns were raised about customers of Greensill using its service unfairly to force small business suppliers into unfair arrangements.
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