Compliance

Greensill Capital Saga Continues, Credit Suisse Liquidates Funds

Tom Burroughes, Group Editor, London, 9 March 2021

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The problems surrounding London-based Greensill Capital, which erupted a week ago, took another turn when the firm filed for bankruptcy protection. The woes led Credit Suisse Asset Management to suspend, and later terminate, a range of exposed funds. The European Central Bank is talking to banks. The Swiss regulator is watching the situation.

Swiss and other European authorities are eyeing a mushrooming financial saga surrounding the woes of London-based Greensill Capital, a player in what is called supply-chain finance that has filed for bankruptcy protection. Credit Suisse Asset Management late last week said it was terminating funds exposed to the sector; Zurich-listed GAM Investments also said it was shutting a fund.

The Wall Street Journal yesterday said one victim of the Greensill Capital woes are German investors. An early view shows that as much as €700 million of Greensill Bank’s deposits, equivalent to $830 million, out of a total of €3.6 billion (or $4.3 billion), weren’t covered by deposit insurance. Some of those deposits were held by German municipalities, which were attracted to Greensill for its slightly higher interest rates, the paper said. 

“We are in contact with Credit Suisse in the context of the Greensill case regarding funds in Luxembourg and Liechtenstein,” a spokesperson for the Swiss Financial Markets Authority, aka FINMA told this publication, saying it was also in contact with GAM about its actions. The regulator, which said it is also talking to other watchdogs, declined further comment.

A report in the Financial Times at the weekend said the European Central Bank is speaking to banks about possible exposures to Gupta and Greensill Capital. The UK's Financial Conduct Authority declined to comment. WealthBriefing understands that the FCA does not regulate Greensill because the firm offers supply-chain to corporate customers, rather than to individual investors. The only regulatory role the FCA has in supervising such firms is to enforce anti-money laundering controls. Within the Greensill group there is Greensill Capital Securities Limited, which was an appointed representative (AR) of an authorised firm Mirabella Advisers LLP. 

Greensill Capital, founded by former banker Lex Greensill, said last week in a statement that it has “entered a period of exclusivity with a leading global financial institution with a view to concluding a transaction with them this [last] week.” However, the latest reports said it was seeking bankruptcy protection. Backers of Greensill Capital have included Japan's SoftBank. 

In early March, Credit Suisse suspended $10 billion of funds linked to the Greensill business after worries about Greensill’s exposure to a single client - UK-based steel magnate Sanjeev Gupta, who is a former Greensill shareholder. The firm has supplied financing to Gupta's GFG Alliance group of companies, which created a metals empire by acquiring failed steel mills and other distressed industrial businesses. In February, a bid by one of Gupta’s companies to acquire the steel operations of Germany’s Thyssenkrupp AG failed after the latter company ended talks over a deal.

Credit Suisse Asset Management gave details on how it is terminating its supply-chain finance funds.

“Credit Suisse Asset Management’s priority is to ensure a balance between a timely liquidation of the funds and maximising value for the investors. The first payments amounting to approximately 80 per cent of the available cash and cash equivalents are expected on 8 March 2021 for the Luxembourg domiciled funds and later the same week for the Liechtenstein domiciled fund,” it said.

“The valuation uncertainty with respect to certain investments, the reduced availability of insurance coverage for new investments and the substantial challenges to source suitable investments make it currently unachievable for the Credit Suisse supply chain funds to remain invested in accordance with their investment policies,” the Swiss firm said. “Credit Suisse Asset Management fund boards consider that these market conditions will endure such that the funds can no longer be appropriately managed and have therefore decided to terminate the funds with effect as of 4 March 2021.”

The firm said that all of the funds’ shares will be compulsorily redeemed. Pending redemption, requests will be cancelled. Liquidation proceeds will be paid out to investors in several instalments. The first payments amounting to about 80 per cent of the available cash and cash equivalents will proceed starting on 8 March 2021 (with value date 10 March 2021) for the Luxembourg domiciled funds and later the same week for the Liechtenstein domiciled fund. The firm also waived management fees immediately. 

The CSAM funds affected are: Credit Suisse (Lux) Supply Chain Finance Fund; Credit Suisse Nova (Lux) Supply Chain Finance High Income Fund; Credit Suisse Nova (Lux) Supply Chain Finance Investment Grade Fund; and Credit Suisse Supply Chain Finance Investment Grade Fund.

Supply-chain finance is a type of cash advance, similar to invoice finance, based on the credit rating of companies in the supply chain. Smaller firms can benefit from the higher credit scores of their buyers, and buyers can extend payment terms. It has traditionally been a field for large banks. The field is an example of what might be called alternative finance, and has attracted funds at a time when more conventional lending has been squeezed by ultra-low/negative interest rates.

(Editor's note: The issues are complex and now that Greensill Capital has filed for bankruptcy protection, it may not be the time to start drawing conclusions. What appears to be a concern is whether there was sufficiently robust assessment of the risks involved by those banks involved.)

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