ECB quizzes banks over exposure to Greensill and Gupta

Europe’s top banking regulator has asked the continent’s lenders for details of their exposure to stricken Greensill Capital and its key client GFG Alliance, as officials try to understand whether the crisis is contained, according to four people familiar with the matter.

Greensill last week was pushed to the brink of insolvency after Credit Suisse abandoned €10bn of supply chain finance funds linked to the group and as Germany’s banking watchdog BaFin froze its Bremen-based bank and filed a criminal complaint alleging balance sheet manipulation.

Supervisors at the European Central Bank have asked banks to provide details of outstanding loans to Greensill and GFG, which operates steel mills around the world and relied heavily on Greensill for funding.

A person familiar with the matter said the move was standard and did not reflect heightened concern at the central bank. The ECB, Greensill and GFG Alliance declined to comment. BaFin has said Greensill Bank, one part of the wider London-based group, is too small to cause serious damage to the wider financial system.

Greensill Capital has had a rush of boardroom resignations in recent days, according to Australian corporate filings, including its chairman Maurice Thompson and the chair of its audit committee Pat Allin. The filings show that several other directors resigned around a month ago, including Lex Greensill’s brother Peter.

Understanding the web of exposures is also part of the due diligence carried out by Apollo Global Management, which is in talks to acquire parts of Greensill.

Over the weekend the talks were “at full speed”, though “a lot of technical details still need to be ironed out”, said one person. A deal could be worth about $100m, said two people familiar with the matter.

Sanjeev Gupta has built into a sprawling empire and has depended on Greensill during his expansion © Carla Gottgens/Bloomberg

The $455bn US investment group and its insurance affiliate Athene want to take on Greensill’s most creditworthy clients and have contacted some to reassure them it will provide them with financing if the deals goes ahead, two people familiar with the matter said.

However, Apollo will not take on exposure to GFG and may also leave behind many SoftBank-backed companies that Greensill has financed via the Credit Suisse funds, said one person familiar with the process. SoftBank owns a stake in Greensill via its Vision Fund and the Japanese group’s portfolio companies have also borrowed from it.

Apollo is particularly keen to take over Finacity, which Greensill acquired in 2019, the people said. Finacity primarily provides administrative services that underpin the process of securitising invoices. Apollo declined to comment.

There are also questions about insurers’ exposure to Greensill. Last week court filings showed the group was trying to restore about $4.6bn of credit insurance, warning that the loss of coverage could trigger a wave of insolvencies.

The main exposure is at Japan-based Tokio Marine, which last year dismissed an underwriter after he was found to be insuring amounts to Greensill “in excess of his delegated authority”, with the total exceeding A$10bn (US$7.7bn). Tokio Marine declined to comment on its remaining exposure.

Insurance Australia Group, another insurer that has had business with Greensill, does not believe it has material exposure, said one person familiar with the matter.

Whatever the eventual toll on the broader financial system, the plight of Greensill is affecting GFG, which entrepreneur Sanjeev Gupta has built into a sprawling empire, spanning metals and banking, with $20bn in revenues and 30,000 employees.

Union officials in the UK are set to hold crunch talks as early as Tuesday with Gupta amid mounting concerns among employees and local politicians about the financial viability of Liberty Steel, the group’s main metals business. One focus of discussions is expected to be the group’s speciality steel plant at Rotherham.

The current production run is due to end this Friday but there are concerns over the availability of working capital after that, according to two people familiar with the situation. Some scrap suppliers to Liberty Steel have also started to reduce their financial exposure to the group, asking for cash upfront or not renewing contracts on the advice of trade credit insurers. 

GFG declined to comment on the concerns. A spokesperson for the Community steel union said it would be seeking “assurances on behalf of our members” at the meeting with Gupta this week.

Gupta has depended on Greensill during his expansion. According to people with first-hand knowledge of the matter, Greensill Bank provided about €2bn in financing to the entrepreneur with other supply chain finance coming from other parts of Greensill.

BaFin earlier this month said that during KPMG’s special audit of Greensill Bank the lender “was unable to provide evidence of the existence of receivables in its balance sheet that it had purchased from the GFG Alliance Group”.

Greensill Bank last week said it had sought legal and audit advice about the treatment of assets on its books. GFG, which has not been accused of wrongdoing, declined to comment.

Gupta’s main foray into the traditional bank debt market was his 2018 acquisition of an aluminium smelter in Dunkirk. The deal was backed by a $350m loan, from lenders that included European banks such as BNP Paribas and Natixis.

The FT reported in 2019 that the loan fell into a “technical default” earlier that year because of breaches of terms.

The FT revealed last year that Gupta’s own UK lender Wyelands Bank had funded his wider business empire through a network of shell companies. The UK’s Prudential Regulation Authority last week ordered Wyelands to return depositors’ money.

Additional reporting by Robert Smith and Ian Smith

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