Hello. It looks like you’re using an ad blocker that may prevent our website from working properly. To receive the best Tortoise experience possible, please make sure any blockers are switched off and refresh the page.

If you have any questions or need help, let us know at memberhelp@tortoisemedia.com

Slow Views

I’ve been chasing Greensill for years. Why wasn’t the regulator?

Thursday 2 September 2021

The scandal of David Cameron’s embroilment with the bankrupt supply-chain business is only part of a huge financial story. It is extraordinary that the UK’s Financial Conduct Authority has been so passive


It’s weird watching yourself on TV. Your voice sounds funny, and you don’t look right. Your kids stare at the screen – you, and then the real-you and back again – wondering how their dad can travel through time and space.

But that was not the strangest thing about appearing on Panorama earlier this month. I’ve been writing about Greensill Capital for the best part of three years, and, for most of that time, nobody seemed to care. 

I’d harp on to friends and colleagues and sources about this fast-growing supply chain finance business, and most of them would stare blankly back. Then, earlier this year, Greensill blew up. The firm, which counts David Cameron as a senior adviser and is backed by giants of banking and investing, declared itself bankrupt. Billions of dollars of investors’ money was suddenly unaccounted for amid a sprawling business and political scandal that has reverberated through Whitehall and the City and around the world.

Suddenly, everyone cared about Greensill. Including the producers at Panorama. Almost overnight, the Greensill saga had gone mainstream.

I first wrote about the company in early 2019. The niche firm was barely known, even in the close-knit circles of high financiers and business journalists. Reporters at Bloomberg, Reuters, the Financial Times and elsewhere had written about the company from time to time. But most of the coverage mentioned Greensill only in passing, as one of a clutch of hot new “fintechs” – shorthand for financial technology firms – or in stories about some other company they had loaned money to, often companies that had found themselves in financial difficulties.

Back then, I also had no notion of the scale of the scandal that was brewing when I wrote a sceptical article about the company’s founder, Lex Greensill, for Financial News

At that point, Greensill had become embroiled in a much bigger story involving Swiss asset manager GAM Holding AG, which suspended and then fired a portfolio manager for alleged gross misconduct. I had seen documents that showed all of the allegations related to the portfolio manager’s relationship with Greensill and the investments he’d bought from Greensill – many of them assets of questionable value. 

The documents also showed that the results of an internal investigation at GAM had been shared with the UK’s main financial regulator, the Financial Conduct Authority, whose staff had sent a clear message to GAM’s top management that they should deal harshly with the employee in question. They did, and when the concerns about his behaviour inevitably became public, GAM’s share price tanked, investors pulled billions from its funds, and several top executives left the firm.

Greensill was mentioned here and there in the stories about GAM’s near-death experience. But my story shone a light on Lex Greensill himself. I was told the banker, from Bundaberg, Australia, had a reputation for pushing the envelope and taking risks with other people’s money – not necessarily bad when you’re trying to make a profit. But there was enough noise to suggest people close to Greensill were concerned that things occasionally crossed a line. 

When Lex appeared on Ian King’s business show on Sky News shortly after the story was published, King waved a copy of Financial News in his face live on air and asked how he felt about the “disobliging” article. 

Lex’s response was telling: “Look, Ian, there’s a lot of people who don’t send me Christmas cards at some of the big multinational banks now. But the fact is when you’re disrupting a multi-trillion dollar financing industry, we are going to upset a few people along the way and cause a few stones to be thrown in our direction.”

It was a textbook reply along the lines of: “Those stodgy bankers are all upset because we’re new and nimble and we’re eating their lunch.” 

Indeed, it was exactly the kind of response you might expect to hear from the bosses of disruptive companies such as Amazon or WeWork or Tesla, reacting to criticism that their businesses were hurting traditional retailers, real estate companies or car manufacturers. Like the leaders of some of the hottest new technology companies on the planet, Lex aimed to come across as polished, intelligent and even visionary.

Despite playing a central role in a major financial scandal, he had come out fighting. My sources tell me that his bold stance galvanised people in the fledgling firm who had thought the GAM crisis might have spelled the end of Greensill altogether. His confidence was also well founded given what happened next. Within weeks, Greensill had secured a massive $800 million round of funding from SoftBank Group Corp.’s Vision Fund – a $100 billion investment fund that was ploughing huge investments into promising start-up companies around the world. Later in 2019, Japan’s SoftBank poured a further $600 million into Greensill. The company was valued at several billion dollars, which meant Lex was a billionaire, on paper at least. He went on a rapid hiring spree and bought a fleet of private aircraft.

By the time of its collapse, Greensill had also accrued an impressive roster of supporters, including giant Swiss bank Credit Suisse (which peddled $10 billion worth of investment funds that invested in Greensill’s loans); the well-respected private equity firm General Atlantic, which had put $250 million of its own money into Greensill; and a host of former senior bankers and politicians who were employees or board members.

What tempted them to back the company? Some were very well remunerated. We reported at the Wall Street Journal that David Cameron made several million dollars from Greensill. The Panorama special assessed that his earnings added up to more than $10 million – though a spokesperson for Cameron said that the figure was incorrect.

In general, Greensill paid staff well, often doubling the salaries of new hires. Stock in the company – which could have been worth millions of pounds – was also doled out quite freely, according to my sources. For individuals at companies that worked with Greensill, such as GAM and Credit Suisse, there were lucrative fees to be made from this fast growing business.

There was also the promise of supply chain finance. This form of lending is not especially new. For centuries, bankers have made loans to business owners that were paid back when their customers settled their debts. We learned about this when I trained as a chartered accountant 25 years ago.

More recently, a few banks started thinking about this transaction in reverse. Imagine a small company that makes parts that it sells to a large car manufacturer. The car company might not pay for those parts for three months or longer. But the small supplier wants to get paid as soon as possible. And the car company doesn’t really want its suppliers to get into trouble because they don’t have any cash. In steps a bank.

For a fee, the bank can provide funds to the small supplier much faster, and collect the money from the car manufacturer later. The fee might entail paying the supplier a discount from their full invoice. This is a very basic version of supply chain finance, and there are lots of variations on it. For the most part, it’s considered to be a very stable form of lending, and it can be profitable if you do it at large scale.

At Greensill, there were two important twists. First, the process was typically backed by investors in funds – at GAM or Credit Suisse – that invested exclusively in Greensill’s supply chain loans. Also, the funds were protected by trade credit insurance – insurance that pays out when the borrower defaults on its loan commitments.

The whole supply chain finance business has taken off in recent years. A frequently cited report from consultants McKinsey & Co. in 2015 said that there was a $2 trillion market waiting to be turned into financial assets. For SoftBank and other investors in Greensill – including employees with stock in the company – that represented a huge potential payoff. In the end, it never came, and SoftBank wrote off its entire investment.

So far, so promising. But what went wrong? The answer to that is complicated, of course, as is almost always the case when big businesses collapse.

For starters, it turns out that supply chain finance is not all that profitable, especially when you have to pay insurance providers, fund investors and cover an expensive payroll. Then there is the pressure of living up to the promise of a highly-valued technology company, under pressure to deliver results in the form of fast-growing revenue and profits. One way to address these challenges was to make loans to clients that paid more – but those were inevitably riskier businesses that were more likely to default on their loans.

Inevitably, Covid played a part, disrupting supply chains and spooking investors. More specifically, though Greensill said it worked with ten million customers and talked about hundreds of institutional investors and dozens of insurance relationships, the company was, in practice, particularly dependent on a handful of primary relationships. In particular, it was heavily reliant for profits on business from the steel magnate Sanjeev Gupta, and its insurance was mostly underwritten by a relatively small Australian company called the Bond and Credit Company.

The result of all this was that much of Greensill’s business was inherently riskier than supply chain finance was supposed to be. And the investors who put their money into Greensill assets were getting a mixed bag of safe, stable investments – and something altogether more vulnerable. 

Earlier this year, when the small insurer – now owned by Japan’s Tokio Marine Holdings – declined to continue providing coverage to Greensill, it meant the Credit Suisse funds, with $10 billion in them, could no longer continue operating. At the same time, Greensill was also dealing with an ongoing investigation by German regulators into a bank it owned there – the German authorities were concerned about the bank’s significant exposure to Sanjeev Gupta’s companies.

The company’s collapse was speedy, and the majority of the 1,000 or so employees had little idea it was coming until right before the end. 

By that point, the political strand of the Greensill scandal had become a mainstream public issue. It turned out – as many of us who’d been covering Greensill had known for a while – that Cameron had not been employed for his financial expertise or knowledge of credit risk management. The ex-PM was a door-opener, helping Greensill meet with business and political leaders around the world. A photo I sourced of Cameron and Greensill sitting cross-legged and twin blue suits at the desert retreat of the Saudi leadership went viral. 

The two men’s connection went back a few years. Lex had been given rare access to the corridors of power. In the aftermath of the financial crisis, a time when Cameron’s government had been looking for ways to save money and supply chain finance was being proposed by some as a potential solution. Greensill, a former Morgan Stanley and Citigroup banker, was something of an expert in the field and had become an adviser to Number 10. He worked the connection – though at times his suggestions were too audacious for the civil servants he was surrounded by – and was eventually awarded a CBE for his services. A video of the ceremony was at the top of the Greensill website.

What emerged in the period after Greensill’s collapse was the extent to which the company attempted to gain preferential access to government. A series of text messages between Cameron and his former government colleagues revealed an uncomfortably relentless lobbying campaign, especially during the past year when Greensill’s business found itself in increasing turmoil. (Cameron has denied knowing of the company’s problems.) 

Greensill also became an accredited distributor of government Covid loans – a report by the National Audit Office found it had distributed seven loans totalling £350 million to companies owned by Sanjeev Gupta, which was potentially in breach of a cap on the total that could be loaned to a single business group.

The Panorama investigation showed that six months after the company collapsed, there are still many questions to be answered. There’s an investigation by the Serious Fraud Office into Sanjeev Gupta’s businesses, which is also looking at Greensill’s financing role in that connection. The German banking regulator has filed a complaint about Greensill with criminal prosecutors. There are several civil lawsuits aimed at the company. Several parliamentary inquiries into the Greensill scandal are still underway. And billions of dollars of Credit Suisse’s investors’ money has not been recovered.

But one question that has bothered me since I first started looking at Greensill years ago is the whereabouts of our own UK regulator. Back in the summer of 2018, communications from the Financial Conduct Authority left senior management at GAM in no doubt that the regulator was deeply concerned about the alleged conduct of its portfolio manager and his relationship with Greensill. My sources suggest that GAM’s top leadership felt the FCA was demanding the sternest possible action.

And yet, years have gone by and the FCA has hardly been heard from in respect to Greensill or the fired GAM portfolio manager. If the evidence they’d seen was so serious as to warrant dismissal of a high profile employee – an action that put GAM in serious jeopardy – how come the FCA had so little to say? How come it allowed the Greensill scandal to balloon?

One answer is that the business itself sits in a sort of regulatory no man’s land. The parent company is registered in Australia. The funds that invest in its assets are based in various jurisdictions. Its bank is in Germany. Its business operates out of the UK. 

So who or what is the primary regulator of a firm like Greensill? Hard to say. The Bank of England recently declared it didn’t regulate Greensill because it didn’t pose a system-wide threat to the financial sector. The Prudential Regulation Authority said Greensill was too small for it to monitor. 

The Financial Conduct Authority regulated Greensill for anti-money laundering purposes, but Greensill was actually registered at the FCA through another entity, Mirabella Partners, under the so-called “appointed representative” scheme – which is meant to allow very small businesses to register through a third party so that they don’t have to incur the burden of regulatory red-tape. FCA chief executive Nikhil Rathi has already said that the regulator is taking another look at the scheme to see if it should be tightened up.

But the FCA is also notoriously slow to act. Investigations frequently drag on for years, during which the perpetrators of alleged misconduct are left in limbo; potential victims of potentially errant businesses are left unaware; other branches of the financial infrastructure don’t know that companies approaching them for accreditation may be under a cloud. Executives at the regulator also say privately that they just have too few people covering a massive, global, trillion pound industry to look into every business that raises a few red flags. 

It’s more than three years since the FCA sent its missives to GAM, and in that time, Greensill went from relative obscurity, to multi-billion dollar business, to bankruptcy and political notoriety. So, as someone who has covered the story from its very beginning, I’m left asking a very straightforward question: how different it might all have been if the regulator had simply pursued its concerns back then, and – well – regulated.


Read up