The Rise and Fall of Greensill Capital- A Saga

Greensill Capital is a financial services company, based in the UK, that serves the worldwide market. They filed for insolvency protection this Monday, March 8th 2021. Founded in 2011 by Lex Greensill, a prominent billionaire Australian businessman, the company focused primarily on supply chain finance. This writer would not be surprised to see a premiere of a ‘Wolf of Wall Street’’-esque film glamorising the story of this colourful character and the recent explosive collapse of his namesake firm. Let’s tell the story from start to finish - the origins, rise and fall of Greensill Capital, a saga peppered with many recognisable names; Sanjeev Gupta, GAM Investment Fund and David Cameron among them. 

So, who is Lex Greensill? Australian-born to a family of sugarcane farmers in rural Bundaberg, Queensland, Greensill truly embodies the stereotypical, but very endearing ‘rags to riches’ story (hence my belief Scorsese will clamber for rights to his archetypal tragic hero story). Greenshill had bigger aspirations than farming sugarcane and was incensed by the financial hardships his family regularly faced. Aged 24, he relocated to the UK with a dream to become a banker.

He joined Morgan Stanley four years later. Early in his career, he served as advisor to David Cameron who, of course, is infamously linked to the metal magnate Sanjeev Gupta (remember this for later, it will be important!) These weren’t Greensill’s only ‘friends in high places’. In Queen Elizabeth’s 2017 Birthday Honours he received the title of Commander of British Empire from Prince Charles. Greensill founded his own financial services company in 2011. He often rubbed elbows with British elite;  the aforementioned former prime minister David Cameron and Neil Garrod, chief treasurer of Vodafone, among others. 

From its inception in English county town Norwich, Greensill Capital grew to dizzying heights. Initially specialised in supply chain finance, they subsequently diversified their revenue streams. For those not familiar, supply chain financing provides a means for buyers to pay debts to suppliers, generally small businesses, earlier, and later repay the costs with interest to a third party, by means of ‘reverse factoring’. Greensill paid a company’s invoices to suppliers at a slight discount, earlier than than the company would otherwise. Then, the company paid Greensill at a later date. Typically these types of loans aren’t particularly profitable to banks due to regulatory frameworks and capital restrictions, which inspired the formation of the likes of Greensill or competitor Stenn International, who are subject to significantly less stringent regulations. Greensill’s expressed vision had an honourable mission; ‘making finance fairer’ and ‘democratising capital’, stemming from his experiences on his family’s small farm.

The company portrayed itself as saviour to ordinary folk against the big bad financial wolves, Greensill himself their Messiah. It was certainly an appealing narrative for everyday working-class people. He boldly appeared on Sky TV last year, as Britain reeled from the first wave of the coronavirus pandemic, and promised NHS workers to cash a part of their pay cheque every day, rather than waiting until the end of the month, at no additional cost. Greensill certainly possessed talents for public speaking, financial engineering and a unique ability to blur the lines between the public and private sector. It was this skill set, and his unrivalled abilities to mingle with the upper echelons of British society, that allowed him to become one of the richest men in Australia; a truly self-made billionaire. Lex regularly flew on Greensill Banks private jets, which were leased to a subsidiary of Greensill Capital, a mode of transport perhaps at odds with his humble, down-to-earth image.   

However, behind the scenes of this alluring story a darker picture was emerging. Greensill’s eponymous company was certainly not ‘making finance fairer’ through their shady internal dealings. Their specialist product is a matter of great contention in the financial world. Supply chain finance has been said to harbour dangerously large potential to cover up sky rocketing borrowing levels. It was only last year that Middle Eastern hospital operator NMC Health was exposed by short seller Carson Block. NMC went into administration last year in an equally dramatic fashion, after downplaying their use of supply chain finance. The collapse this engendered was a huge issue for hospital staff in the UAE who were left waiting for delayed wages. 

What happened within Greensill to cause this colossal crash? The string of allegations against them goes back several years. In 2016, the business’s public accounts revealed they made losses of $54m in bad debt. This is where Sanjeev Gupta made his appearance on the scene. In October 2017 Lex helped the steel tycoon, a long time business partner, and equally ostentatious socialite, to open an account with Swiss Investment firm GAM. GAM were managing £50m of Gupta’s money in a very peculiar way. They channelled the flow of financing, taking Gupta’s money, and then investing the cash back into his own companies supply chains.

A star fund manager at the Swiss investment fund, Tim Haywood, started investing with Greensill in 2015. The following year, when losses hit Greensill, GAM lent $120m to them through a shell company, ironically named after a creek on Lex’s humble Queensland farm. Similarly, business between Gupta and Greensill was also booming. In the financial year 2017 Greensill witnessed spectacular revenue growth of close to 300%. However, it was not an increase in operational efficiency that cut the financial services firm’s bottom line. Investigations have revealed that $70m of Greensill’s $102m revenue was coming from the companies belonging to Gupta. In 2018, GAM began to wake up to fund manager Haywoods underhand deals with the two men, and suspended him following internal risk management and record-keeping audits. Investors scrambled to exit the disgraced funds, and GAM was forced to liquidate its flagship fund range, worth $7.3bn. 

Yet, in the wake of the GAM disaster, the two most complicit men, Greensill and Gupta, were themselves seemingly unaffected. It later came to light that a series of transactions to repay GAM were used to shift debts relating to Gupta companies onto the balance sheet of the German lender Greensill Bank in 2019. The FT were the first to blow the whistle on this bombshell discovery. BaFin, a German regulator, became concerned by the billions of euros of Gupta’s debt in 2020. 

Also in 2019, Softbank invested a cool $800m into Greensill through their Vision Fund. This enabled Greensill to delay considerations of an IPO. By 2020, the firm was pursuing other investors aiming to raise in the range of $500-$600m and to complete an IPO within a two-year time frame. In order to do this, sadly, the humble Greensill had to wave goodbye to his private jets. In the back half of 2020 they sought out a new auditor, having outgrown Saffrey Champness. KPMG, Deloitte and BDO all politely declined, which has led us to the messy events of this week, with Credit Suisse Group AG having frozen $10 billion of their funds. 

Lex Greensill’s reckless unchecked ambition is reminiscent of a modern day Macbeth. Now his Burnam Wood is fast approaching and yet he remains defiant in the face of obvious defeat. With a string of lawsuits ahead, we will soon see if this bold, boastful and ultimately unscrupulous former billionaire will maintain his belligerent attitude. Or can he, and the other Greensill senior management complicit in this amoral corporate behaviour, face up to their wrongdoing?

There’s no doubt that ‘fair is foul, and foul is fair’ in the world of high finance these days. Many scandals of this nature are emerging and in the long run it is us, the regular consumers of the world economy, who pay the price. The real question is whether there is a concealed house of cards waiting to tumble. When firms such as Greensill and their partners are put under a magnifying glass, will more cracks appear? Do financial watch dogs need a shake up? This reporter is certainly keen to see what’s to come in the world of corporate scandal, and I also anxiously await the inevitable string of dramatised feature films recounting these stories. Adam Mc Kay and Martin Scorsese - I’m looking at you.