ECB asks banks about their exposure to Greensill and Gupta

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

Greensill was pushed to the brink of insolvency last week after Credit Suisse ditched € 10 billion in supply chain finance funds linked to the group and German banking watchdog BaFin froze its bank based in Bremen and deposited a criminal complaint alleging a manipulation of balance sheet.

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

A person familiar with the matter said the move was standard and did not reflect increased concern from the central bank. The ECB, Greensill and GFG Alliance declined to comment. BaFin said Greensill Bank, part of the larger London-based group, is too small to cause serious damage to the financial system as a whole.

Greensill Capital has seen a wave of board resignations in recent days, according to documents filed by Australian companies, including its chairman Maurice Thompson and its audit committee chairman Pat Allin. Filings show several other directors resigned about a month ago, including Lex Greensill’s brother Peter.

Understanding the network of exhibits is also part of the due diligence conducted by Apollo Global Management, which is in talks to acquire parts of Greensill.

Over the weekend, talks went “full speed”, although “there are many technical details yet to be worked out,” one person said. A deal could be worth around $ 100 million, said two people familiar with the matter.

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

The $ 455 billion U.S. investment group and its insurance subsidiary Athene want to go after Greensill’s most creditworthy clients and have reached out to some to reassure them that they will provide them with financing if the deals go through, said two people familiar with the matter.

However, Apollo will not be exposing itself to GFG and could also leave behind many SoftBank-backed companies that Greensill funded through Credit Suisse funds, a person familiar with the process said. SoftBank has a stake in Greensill through 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 invoice securitization process. Apollo declined to comment.

There are also questions about insurers’ exposure to Greensill. Court filings last week showed the group was trying to restore about $ 4.6 billion in credit insurance, warning that the loss of coverage could trigger a wave of insolvency.

The main risk concerns the Japanese company Tokio Marine, which fired an underwriter last year after assuring that it was insuring amounts to Greensill “in excess of its delegated authority”, the total exceeding 10 billion Australian dollars (7.7 billion US dollars). Tokio Marine declined to comment on its remaining exposure.

Insurance Australia Group, another insurer who has done business with Greensill, does not believe he is exposed in any meaningful way, a person familiar with the matter said.

Whatever the final toll of the financial system as a whole, Greensill’s fate affects GFG, which entrepreneur Sanjeev Gupta has built in a sprawling empire, spanning metals and banking, with $ 20 billion in revenue and 30,000 employees. .

Union officials in the UK are expected to hold close talks as early as Tuesday with Gupta amid growing concerns among workers and local politicians over the financial viability of Liberty Steel, the group’s main metal business. One of the axes of the discussions should be the group’s specialized steel plant in Rotherham.

Current production is due to end this Friday, but there are concerns about the availability of working capital afterwards, according to two people familiar with the situation. Some Liberty Steel scrap suppliers have also started reducing their financial exposure to the group, either asking for cash in advance or not renewing contracts on the advice of commercial credit insurers.

GFG declined to comment on the concerns. A spokesperson for the Community Steel Union said it would seek “assurances on behalf of our members” when meeting with Gupta this week.

Gupta depended on Greensill during its expansion. According to people with first-hand knowledge of the subject, Greensill Bank provided around € 2 billion in financing to the entrepreneur along with other supply chain finance from other parts of Greensill.

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

Last week, Greensill Bank said it had sought legal and audit advice on the treatment of assets on its books. GFG, who has not been charged with wrongdoing, declined to comment.

Gupta’s main foray into the traditional bank debt market was its acquisition in 2018 of an aluminum smelter in Dunkirk. The operation was backed by a loan of 350 million dollars, granted by lenders including European banks such as BNP Paribas and Natixis.

Flight reported in 2019 that the loan went into “technical default” earlier that year due to breach of terms.

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

Additional reports by Robert Smith and Ian Smith

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