The Greensill bank saga has reminiscent Similarities to 2008 crisis

The canary in the 2008 crisis coal mine was a little known failure of a French Mutual fund to make payments. This followed failure of US mortgage lenders to pay their bills.

Fast forward to February and March 2021 and these snippets of the Greensill Bank timeline. Their failure see Credit Suisse laying off employees, German municipalities unable to payout bond holders, and corporate losses.

Greensill is in Supply Side financing business. That’s a fancy name forty old style factoring or receivable financing. It is off balance sheet. This is the worst kind of Shadow Banking.

FT Feb 23rd

The Financial Times revealed last week that German financial regulator BaFin has asked Greensill Bank to reduce its exposure to Gupta’s businesses. The German lender is a subsidiary of Greensill Capital, a SoftBank-backed company that employs former UK prime minister David Cameron as an adviser.

FT Mar 7th

The investors, who were chiefly clients of Credit Suisse Asset Management and fund manager GAM, required Greensill to take out credit insurance to cover the debts. But — unlike the subprime mortgage lenders — Greensill continued to have skin in the game because it was exposed to first losses under an uninsured part of the fund.

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In banking that rate of expansion tends to point to excessive risk-taking and a poor-quality loan book. And certainly the Australian parent felt balance sheet strain. In 2016 and 2017, its liabilities exceeded its assets, according to a report by Scope rating agency. Yet Lex Greensill pulled off an astonishing coup by persuading first private equity group General Atlantic to put in $250m of fresh capital, and then the SoftBank Vision Fund of Japanese entrepreneur Masayoshi Son to stump up $1.5bn more.

So it is no surprise that the last accounts filed by the British subsidiary at end-2019 showed a very solvent balance sheet with a fat capital cushion of $155m backing total assets of $682m. Yet, in supply chain financing the face of the balance sheet conveys little about the nature of the risks being run.

FT Mar 12th

Greensill Bank, which has raised €3.5bn of deposits from retail clients and municipalities, is expected to be formally wound down soon, according to people familiar with the matter.

While the bank’s retail deposits would be covered by a guarantee scheme, the prospect of the lender’s collapse has sent shockwaves through German municipalities, which held up to €500m not covered by this deposit insurance