UK lenders were asked to quantify their exposure to Greensill Capital at bank of england after the trade finance lender entered administration today.
Grant Thornton has been named administrator as US private equity firm Apollo Global is set to buy some of the top assets in a pre-pack deal.
Pre-confirmation reports suggested loans to GFG Alliance, the owner of British Steel through its Liberty Steel arm, were not part of the deal, increasing uncertainty over its future and 5,000 direct and indirect employees.
It was the size of the loans to GFG that apparently prompted insurer Tokio Marine, Swiss credit and the Swiss financial house GAM Holding to withdraw their financial support to Greensill.
Credit Suisse suspended about $10 billion in funds linked to Greensill, saying on Monday it had doubts about the true value of the funds, while the next day Swiss asset manager GAM Holdings announced it would shut down its $842 million Greensill supply chain finance fund.
Greensill’s apparent collapse will set alarm bells ringing as its activity echoes the Collateralized Debt Securities (CDOs) which are believed to have been behind the financial crash of the first decade of the current century, except in this case instead of break up mortgages and resell them on Greensill buys back invoices and securitizes them.
From a supplier’s perspective, the practice of accepting a small “discount” on money owed to them by a customer in exchange for immediate payment makes sense in terms of alleviating cash flow problems; however, it can also mask rising levels of debt, as happened with the collapse of an entrepreneur Chimebecause accountants do not treat supply chain finance transactions as debt.
Greensill’s current problems came to light after the German banking regulator, which has a representative placed at Greensill Bank, a Bremen-based subsidiary of Greensill, took day-to-day control of the bank, according to agency reports. Bloomberg newspaper and the financial daily, The Financial Times.
Apollo’s bailout deal, if successful, should see it take on some supply chain finance contracts, while insurance coverage will likely offset losses to other victims of Greensill’s decline .