What Brought Greensill Capital To the Brink of Insolvency Within Days?

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What Brought Greensill Capital To the Brink of Insolvency Within Days?

 What Brought Greensill Capital To the Brink of Insolvency Within Days?

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Summary

  • Greensill Capital is at the risk of insolvency, revealed documents produced in a court.
  • The documents highlighted discrepancies in its £5.55-billion insurance of loans to its customers.

 

In what could have a huge impact on jobs across Europe, the US and Australia, global financer Greensill Capital is on the verge of a collapse after a court furnished documents that highlighted discrepancies in its insurance of about loans worth £5.55 billion to its customers. The loans were underwritten by an insurance company, Tokio Marine, which was in a legal battle with Greensill.

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Last year, the undoing of the global financer began after a manager at the Sydney branch of Tokio Marine was fired. The court documents showed that the insurer told Greensill that it would have to withdraw insurance protection for half of its loans worth AUS $4.6 billion, as they were issued by the fired employee, Greg Brereton, who did not have the requisite power.  

To bring a stay order on the policies from lapsing, Greensill filed a legal suit at the Supreme Court of New South Wales, which stated that Tokio Marine started investigating Brereton around May 2020, who was an employee at Bond & Credit Company (BCC), a subsidiary of Tokio Marine. In a letter sent to the company, Tokio Marine informed Greensill of its concerns about the authorisation.

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The court documents highlighted that Brereton, who headed the credit division at BCC, had played a crucial part in helping Greensill obtain the insurance. The documents also suggest that he was dismissed from his service for acting outside the scope of his authority.

After dismissing Brereton, the company decided not to opt for a renewal of credit insurance policies that provided cover to Greensill’s loans worth billions, which has now brought Greensill Capital to the level of almost insolvency.

Lawyers told the court that without the insurance cover, Greensill would fail to fund or have assets that it finances. For these arrangements to stand, it was necessary to have trade credit insurance in place.

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Greensill’s woes exacerbated after regulators Germany clamped down on its operations. German banking sector regulator BaFin debarred Greensill Bank from undertaking monetary operations on 3 March. It said that the bank had €4.5 billion worth of assets at the end of December 2020 but failed to give a correct picture of receivables the company bought from Sanjeev Gupta’s GFG Alliance Group when a special forensic audit was conducted. BaFin said that Greensill was at immediate risk of becoming over-indebted as it had huge exposure to the steel magnet Gupta.

According to a report in the Financial Times, around €2 billion, of the bank’s total loan book of €3.5 billion, had exposure to GFG, which was a risky exposure. 

It has left regulators, and lawmakers baffled as to how Greensill, which had the backing of big names from the financial world like Credit Suisse and Swiss finance house GAM Holding, and had an association with former UK PM David Cameron, came to the brink of insolvency within days. Its insolvency concerns have also jeopardised several jobs. Greensill has 1,000 employees in London. Not just its own employees, the collapse of Greensill would also potentially put in danger the jobs of GFG’s 45,000 employees across the globe, which includes about 3,000 in the UK and 7000 in Australia.

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