Greensill had its closest Wall Street relationship with Credit Suisse Group AG, which provided funding through $ 10 billion of investment funds. But a bunch of other big players – including Citigroup Inc., Morgan Stanley, Ernst & Young, and Moody’s Investor Service – played key roles in Greensill’s rise.
Citigroup expanded its business with Greensill despite several internal warnings not to do so due to reputation issues, according to people familiar with the Citigroup-Greensill relationship. A major U.S. bank operated a trust that processed payments for Greensill lenders, handing money over to investors in the Credit Suisse fund. Citigroup also worked on a last-ditch failed attempt to raise new capital to begin with.
Greensill was founded in 2011 by former banker Morgan Stanley and Citigroup Lex Greensill. The company specialized in supply chain finance, a type of short-term corporate loan.
Greensill planned to overtake big banks that dominate the industry with better technology and by offering the service to more clients. Many of Greensill’s clients were blue-chip companies, although it also provided other, more risky loans that were long-term or for more vulnerable lenders.
Greensill filed for bankruptcy earlier this month after losing critical credit insurance to his business. Credit Suisse suspended the investment fund. Greensill bank in Germany is under investigation by authorities over the reporting of loans to a major client.
The start-up business model required complex financial engineering. He provided supply chain loans to companies, then packed them up in pounds, sold them on to investors, which was off-balance funding for Greensill.
Citigroup operated a trust for Greensill, according to a Greensill marketing document and those familiar with the Greensill-Citigroup relationship.
These trusts are common on Wall Street to handle the wrongdoing of money laundering among financial institutions. But employees of Citigroup’s trade finance team raised concerns in conversations and emails many times over the past five years about doing business with Greensill, according to the public.
Some of the warnings, which were based on Greensill’s business practices, were issued to senior managers in charge of finance and commerce, securities and banking coverage, one of the people said.
In 2019, employees brought their concerns to the bank’s business practices committee, which assesses conflicts of interest and other reputational risks to the bank, one of the people said.
Greensill was also competing with Citigroup in the area of supply chain finance, leading some bank employees to believe that the bank should not be able to do business for it. The trade finance unit had refused to enter into any Greensill-related contracts, according to the public.
The response of the business practices committee could not be confirmed, although Citigroup expanded its business with Greensill in 2020 when it helped the company hunt for new capital, the Journal reported.
Some within Citigroup felt that there was little risk as the bank was largely processing transactions and would not be open to Greensill.
A Citigroup spokesman declined to comment.
Greensill also followed Morgan Stanley, who for several years acted as mediator between Greensill and the investors in the notes. These included money at Credit Suisse and Swiss fund manager GAM Holding AG, according to people familiar with the fund and the Greensill marketing document reviewed by the Journal.
Morgan Stanley briefed the fund on the notes, including prices and duration of the underlying loans, and added the notes with the fund for tax, the people said.
Morgan Stanley also helped Greensill’s largest client in 2019, when GAM closed a fund that had been a major source of funding for Greensill. Some of the funds in the GAM fund were linked to businesses owned by Sanjeev Gupta, a UK steelmaker.
Morgan Stanley used a special vehicle to repackage approximately £ 220 million, equivalent to $ 300 million, of Greensill-issued bonds related to Mr Gupta’s businesses held in GAM funds. Morgan Stanley sold them to their clients, according to some people who knew the fund.
Big Four accounting firm took a close look at the Greensill business. In 2019, EY performed a due diligence investment on Greensill for the SoftBank Group Corp. Vision Fund, Greensill’s largest outside investor, according to a SoftBank investment memorandum reviewed by the Journal.
EY told the Japanese investor that he had a number of risks, including that Greensill relied heavily on a handful of clients for most of its revenue, and that credit insurance was accessible trade is a barrier to the Greensill industry.
EY said in the memo that it expected Greensill to diversify its pool of clients and that insurance would not be as important as Greensill established a successful record. These expectations did not materialize. Greensill went bankrupt in credit after a major credit insurance provider stopped offering new coverage.
Greensill was also a client of EY, which did due diligence on some Greensill projects. In 2019, EY, using a panel of independent judges, named Lex Greensill as Australian Entrepreneur of the Year, announced the company’s aspirations to democratize supply chain finance.
By February of this year, EY had been extremely cautious about working with Greensill because of the potentially notorious blow, according to people familiar with the matter.
The Moody’s credit rating firm made three multi-million-dollar funds at GAM and Credit Suisse that invested in securities created by Greensill. The currency received the third highest rating on the Moody’s scale for bond ratings, indicating that assets are generally considered to be “moderately high credit quality. “
The rankings were important to Greensill as they enabled a wider group of investors to buy into the fund. Moody’s analysts noted that the fund was sometimes accumulated in just a handful of Greensill clients.
It wasn’t until March, however, until the funds were put off, that Moody’s lowered Credit Suisse-Greensill’s money and put GAM-Greensill’s funds under review for depression.
A Moody’s spokesperson declined to comment.
This story was published from a wire group group with no text changes.