I’ll tell you about the papocchio Greensill Capital
Greensill like the subprime crisis? Still a classic speculative operation, with possible dangerous systemic consequences. The analysis by Mario Lettieri and Paolo Raimondi
In recent days, the Greensill financial group took its books to court in London and declared insolvency. Greensill Capital is a London fund that bears the name of its founder.
Its initial "mission" was supply-chain finance: anticipating the payment of invoices, issued by smaller customers and suppliers to large corporations, guaranteeing them faster collections.
The suppliers were happy to get the payments due and, therefore, to escape the long lead times of the corporations. Later, Greensill Capital took the invoices for collection at large corporations, naturally earning a certain premium. The latter saw, with satisfaction, the payment times lengthened. Unfortunately, however, not all the financial statements of the companies involved were, and are, transparent and solid. The system was touted as a "democratization of capital and finance".
Obviously, the "monetization" of the acquired assets (the invoices to be collected) was transformed into investments or credits for other companies. Even more important was the securitization of the acquired invoices which were "packaged" with other financial products and various securities to be placed with investors, especially institutional ones. Just as it happened in the US with the subprime before the Great Crisis.
The system was internationalized with a financial network, through the creation of institutes and banks, the establishment of relationships with large financial and insurance organizations and the active participation in important financing or acquisition operations of other corporations.
This came with the "blessing" of the City, the London government and even the British Royal House. Lex Greensill served as special adviser for financial affairs to David Cameron's government, which in 2018 served as special adviser to Greensill Capital.
To crown all this, Queen Elizabeth II in 2017 appointed Lex Greensill "Commander of the Order of the British Empire". The magic circle was thus closed. Faced with such a promising pedigree, investors were ready to join the deal.
First the American private equity fund, General Atlantic, then the Japanese industrial-financial conglomerate, SoftBank Group. Meanwhile, the company's market value was increasing daily. After all, the supply-chain market is now estimated at 55,000 billion dollars.
With the securitization, the "sausage bonds", obviously with higher yields than normal government bonds, were placed with major clients, including Global Asset Management (Gam), a Swiss asset management company. Credit Suisse would also have bought it for its clients for at least $ 10 billion. To make the securities more attractive, they needed to be covered by major international insurance companies. And here the Japanese Tokyo Marine came into play, which last year, having verified the lack of solidity of Greensill Capital, decided not to renew the insurance guarantees on 4.6 billion dollars of credits.
In 2014, Greensill Capital bought a German bank, Nordfinanz Bank AG of Bremen, then Greensill Bank AG, used to expand the operations of the parent company in many sectors and to raise funds even from small savers. The bank's initial reliability prompted many municipalities and other German public entities to invest in these "sausage bonds". Now, unfortunately, the bank is exposed to over three billion euros. Therefore Bafin, the equivalent of our Consob, was forced to suspend the license and stop all financial operations of the bank.
The global consequences of the Greensill Capital insolvency are all to be verified. Systemic risk has yet to be measured. The story follows other similar cases, such as those of Wirecard and GameStop . The repetition of these speculative financial disasters re-proposes the urgency of a serious reform of the international financial system and, in any case, of at least coordination between the control agencies to protect savers and sectors of real economies.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/vi-racconto-il-papocchio-greensill-capital/ on Sat, 10 Apr 2021 05:11:25 +0000.