The business paid suppliers quickly the bills due from their customers, in exchange for taking a cut. Greensill Capital entities also packaged up invoices “receivables” and sold them to Credit Suisse, with the Swiss bank selling them on to investors.
Insurance was key to satisfying investors that they were protected if things went awry with customers in the higher-grade funds. Greensill Capital entities acquired the insurance via BCC, now part of Tokyo Marine.
Tokyo Marine declined to disclose the full extent of the insurance coverage that it has declared void, but it insured billions of dollars worth of securities for Greensill Capital.
IAG on Monday stuck by guidance about Greensill Capital litigation, maintaining it had no net insurance exposure to trade credit policies sold through BCC.
But IAG has to date been hit with four Federal Court lawsuits relating to almost $ 300 million in insurance claims against Greensill Capital clients. The litigants are Credit Suisse, the administrator of Germany-based Greensill Bank and US financier White Oak.
BCC has been drawn into the two lawsuits involving the bank and financier, being named as a respondent along with its former national underwriting manager Greg Brereton, who signed contracts with Greensill Capital.
Greensill Capital founder Mr Greensill has previously blamed the refusal of insurer BCC to continue insuring securities sold to Credit Suisse after $ 4.6 billion worth of policies expired as a key cause of the firm’s collapse in March 2021, telling a British parliamentary inquiry last year that he was “confident” the policies would be extended.
But Tokyo Marine has stated in court documents that it told Greensill Capital’s insurance brokers, Marsh, in July 2020 that it was unlikely to extend policies covering the firm, and gave formal notice in September that it would not renew policies expiring on March 1, 2021. .
The high income fund waived insurance coverage in order to generate a higher return.
– Credit Suisse
Separately, Credit Suisse on Monday revealed that it had been unable to verify Mr Greensill’s claims that the insurance of securities in its supply chain finance funds would continue beyond March 2021.
A detailed statement by the Swiss bank on its relationship with Greensill Capital, released ahead of its annual general meeting on April 29, said that it may take as much as five years. to recover billions owed from outstanding debtors including Sanjeev Gupta’s GFG Alliance, bankrupt US construction group Katerra and the US’s Bluestone Resources.
Credit Suisse’s former chief risk officer, Lara Warner, was told on February 22, 2021, that Tokyo Marine had not renewed its Greensill Capital policies and that they would expire on February 28, the Swiss bank said.
“The chief risk officer and the executive board of CSG [Credit Suisse Group] were extremely surprised that Lex Greensill informed them of this fact only a few days before the expiration of the insurance, ”the bank said.
“Anyone would have expected an earlier orientation when such a problem arose. Lex Greensill explained this by stating that, due to what Greensill claimed was a missed insurance deadline, he had assumed that the insurance policy would not expire at the end of February 2021. This explanation could not be verified by CSG. ”
Investors who held shares in two of the Swiss bank’s four supply chain funds that held many junk-rated securities have been told to expect losses, despite the bank’s attempts to recover money from debtors and insurance groups. It did not quantify the extent of the expected losses but said litigation to enforce claims could take around five years.
The extent of insurance coverage varied by fund, with all securities in the “virtuoso” fund covered by insurance. But most securities in the “high income” fund were not insured unless they had a lower credit rating than CCC.
“The high income fund waived insurance coverage in order to generate a higher return, but this was associated with a correspondingly higher risk,” Credit Suisse said.
Credit Suisse said it was approached by Mr Greensill in March 2016, and that Mr Greensill “presented the idea of a fund with securitized trade receivables”.
It said Mr Greensill offered to enter into a “warehousing agreement” with Credit Suisse under which Greensill Capital would find debtors (companies), acquire receivables, secure them and structure the notes, which would then be sold to the supply chain finance funds.
The virtuoso fund was launched in April 2017 followed by the high income fund in May 2018. Two investment grade funds were launched in December 2018 and January 2020.
Credit Suisse said services provided by Greensill Capital included monitoring debtors as well as insuring receivables.
Asked by shareholders why the funds’ prospectuses did not mention Greensill Capital and referred only to a “third-party provider” of debtors, Credit Suisse said it wanted to remain free to buy notes from other providers.
“If CSAM [Credit Suisse Asset Management] had specifically mentioned Greensill [Capital] in the prospectus as the provider of the notes, Greensill [Capital] would have obtained a monopoly position. CSAM wanted to avoid this in the interest of investors. ”
Credit Suisse said the funds were “intended only for institutional and professional investors” with some 1,200 investors (more than half of whom were private banking clients) buying shares. However, The Australian Financial Review is aware of at least one investor in the funds who was not a professional or institutional investor.
Credit Suisse said the securitization process was structured in such a way that the notes “always embodied claims against third parties – the SCF Funds and ultimately their investors therefore did not bear any‘ Greensill credit risk ’but invested in claims against third parties backed by trade receivables, ”the bank said.
Some debtors had assumed that “they could always renew the short-term financing in a roll-over with Greensill [Capital]”And therefore had not made provisions for repayment, the bank said.
The outbreak of the COVID-19 pandemic in early 2020 also created financial difficulties for some companies, the bank added.
The bank has done an internal investigation into its relationship with Greensill Capital but has not publicly released its report into the matter, citing ongoing legal action.
At least 10 former Credit Suisse employees have had their contracts terminated following Greensill Capital’s collapse, while others have had their bonuses canceled or reduced. Clawbacks of remuneration were valued at almost $ 57 million, Credit Suisse said.
Mr Greensill declined to comment.