Credit Suisse Group is looking at ways to reduce ties to Greensill Capital over concerns about the specialty finance firm’s exposure to a single client, UK-based steel magnate Sanjeev Gupta, according to people familiar with the matter.
The options under consideration include winding down a $10bn suite of funds the bank runs with Greensill. The bank could also replace Greensill as the main source of assets in the funds. Moving assets tied to Gupta from the funds onto the bank’s balance sheet to protect investors is another possibility, according to the people.
UK-based Greensill is the brainchild of former Citigroup and Morgan Stanley financier Lex Greensill. Founded in 2011, Greensill specialises in an area known as supply-chain finance, a form of short-term cash advance that lets companies stretch out the time they have to pay their bills.
It counts former UK Prime Minister David Cameron as an adviser, and its main financial backer is Japanese tech conglomerate SoftBank Group. Greensill owns a bank in Germany and also does deals that are closer to traditional merchant banking services, such as lending to large investment projects.
In supply-chain finance, Greensill competes with traditional banks such as Citigroup and JPMorgan Chase for investment-grade clients. Some of Greensill’s blue-chip clients include AstraZeneca and Ford Motor. Greensill has also extended financing to lesser-known companies, including small start-up businesses and companies that are considered higher-risk borrowers.
Credit Suisse has been a steady supplier of investor capital to Greensill through the four funds. Sold to pensions, corporate treasurers and wealthy families, the funds invest in securities created by Greensill that fill the short-term financing needs of hundreds of companies.
Credit Suisse has grown concerned over Greensill’s relationship with Gupta, a former Greensill shareholder, according to the people. Greensill has supplied financing to his GFG Alliance group of companies, which in the space of a few years have created a metals empire by acquiring failed steel mills and other distressed industrial businesses.
Last week, a bid by one of Gupta’s companies to acquire the steel operations of Germany’s Thyssenkrupp failed after the company ended talks over a deal.
German banking regulator BaFin last year began probing ties between Gupta’s businesses and Greensill’s German banking unit, according to a person familiar with the probe. A report from Scope Ratings in 2019 said about two-thirds of the bank’s loan book was linked to Gupta’s businesses.
Last October, a Greensill spokesperson said the company has regular dialogue with German regulators, and said the bank’s exposure to Gupta’s companies was significantly lower at that point than at the time the report was released.
It isn’t clear what percentage of the Credit Suisse funds are currently exposed to Gupta’s companies. As of January, his companies weren’t explicitly named in the top 10 recipients of financing in the biggest of the Credit Suisse-Greensill funds, which has $7.3bn in assets, according to a document viewed by The Wall Street Journal.
Any possible change in its relationship with Credit Suisse comes at a challenging time for Greensill. The firm had anticipated extending $173bn in financing last year, according to a presentation viewed by the Journal, but ultimately provided $143bn, flat from the year before. Several Greensill clients hit financial troubles last year, while companies it partnered with loosened ties.
Greensill has recently been trying to raise up to $1bn in fresh capital. That process was initially expected to have been completed by early January, but it has stalled as the firm seeks to address the issues related to its Gupta exposure, according to people familiar with the fundraising.
Last year, Credit Suisse executives grew concerned about potential conflicts of interest in the four funds after SoftBank invested $700 million into one of them. The fund had also made loans to four of SoftBank’s Vision Fund companies. SoftBank ultimately redeemed its stake, and the bank committed to protecting investors.
Appeared in the March 1, 2021, print edition as ‘Bank Eyes Reducing Ties to Greensill.’
This article was published by DowJones NEWSPLUS