London “Are you a scammer?” Labor MP Siobhan McDonagh asks failed fintech founder Lex Greensill. “No, I’m not,” she replies.
The memorable scene took place at a hearing in the British Parliament on Tuesday. For the first time, the Australian commented in detail on the insolvency of his company Greensill Capital two months ago. During the three-hour video appearance before the finance committee, he has to comment on the allegation that investors and taxpayers lost hundreds of millions of euros.
Like the Wirecard case, the Greensill bankruptcy will keep supervisors, prosecutors and politicians busy for a long time. The British financial regulator confirmed on Tuesday that it was investigating the end of the financial supply chain together with authorities in Germany, Australia and Switzerland.
At the start of the hearing in Parliament, Greensill apologized to “all affected” in a prepared statement. This also includes dozens of German municipalities that had invested their savings in the Greensill Bank of Bremen. However, when specifically asked about it by Rep. Angela Eagle, Greensill responded monosyllically: “I read it in the press.”
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The businessman doesn’t seem particularly guilty, although he says he takes full responsibility for the bankruptcy. He repeatedly blames Tokyo Marine’s insurance. The Japanese insurer’s refusal to extend credit default insurance for Greensill’s funds was ultimately the reason for the bankruptcy, Greensill explains. The insurance company did not want to renew the policy due to the corona pandemic.
Take the opportunity to ask for stricter rules for insurers. The current situation is that they cancel insurance coverage in the middle of the crisis when you need it most, she says. That has to change.
MPs criticize Greensill’s business model
He still seems to think his business model is fundamentally good, but admits that too many loans were concentrated on too few clients.
Greensill Capital has been active in supply chain finance. The firm advanced cash to companies and immediately paid suppliers at a discount. He then claimed the full amount of the bill from the customer and pocketed the profit. Short-term receivables were also bundled into securities and offered for sale to investors. Major Swiss bank Credit Suisse sold the largest funds holding Greensill paper.
When Tokio Marine’s insurance coverage expired on March 1, Credit Suisse stopped trading Greensill’s funds. German financial regulator Bafin also placed a moratorium on Greensill Bank. All the money faucets were closed, the company had to declare bankruptcy.
At the hearing, British MPs were unimpressed by Greensill’s remarks. Above all, they want to know if he operated an ingenious Ponzi scheme. Because Greensill not only securitized existing claims, but also future claims. Or as Greensill himself says: “We take real-time and historical data and use it to make forecasts of what will happen in the future.”
Labor MP Eagle complains that he sold investors “wishful thinking”. There is no “transparency” in the business model, criticizes Conservative MP Felicity Buchan. Greensill has made de facto unsecured loans.
“I don’t accept your claim,” Greensill replies. The loans were guaranteed by rights in rem. Only a fifth of all loans were based on future claims. He rejects the charge that he misled investors about the real risks. “All of our investors knew exactly what they were buying. Every investment has a risk.”
David Cameron was an employee of Greensill
He keeps quiet about his biggest client, steel tycoon Sanjeev Gupta’s GFG Alliance. The bankruptcy administrator ordered that he not be allowed to talk about clients, says Greensill. Gupta is currently desperately looking for new sources of money. His factories, including those of Liberty Steel, employ 35,000 people on four continents.
Greensill is also asked about her relationship with David Cameron. The former British prime minister first brought the fintech founder to Downing Street as an honorary adviser to the government. After retiring from politics, Cameron became an employee of Greensill.
Greensill says that Cameron was a senior consultant and regularly attended board meetings as a guest. The former head of government helped him expand to a hundred countries with “geopolitical thinking.” They also wanted to increase awareness of the Greensill brand.
At the beginning of the corona crisis, Cameron also put intense pressure on the Johnson government. He wanted to give Greensill access to the state’s Corona loan programs.
According to a Finance Committee list, Cameron has made a total of 56 appearances with ministers and officials, using text messages, phone calls, emails and face-to-face meetings. In a text message to his former subordinate, Treasury Secretary Tom Scholar referred to Greensill as “my new friend.”
Cameron claims he didn’t break any rules. But the London scandal has raised new questions about the closeness between politics and business. The deputies will soon be able to face the former prime minister personally: on Thursday he will go to the committee for a hearing.
Plus: German municipalities demand 145 million euros from Greensill Bank.