Credit Suisse suspends $10bn in funds tied to Greensill

Credit Suisse said it suspended a group of private investment funds tied to supply-chain finance assets created by SoftBank-backed specialty-finance company Greensill Capital.

The Swiss bank’s asset-management arm said it would stop allowing investors to buy into or sell out of the funds immediately. Credit Suisse manages four private investment funds that contain around $10bn in securities created by Greensill.

The bank said a part of the funds is “currently subject to considerable uncertainties with respect to their accurate valuation.” The Wall Street Journal reported Sunday that the bank was concerned about Greensill’s exposure to a single client, UK-based steel magnate Sanjeev Gupta, according to people familiar with the matter.

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.

Its main financial backer is Japanese tech conglomerate SoftBank and it counts former UK prime minister David Cameron as an adviser. Greensill owns a bank in Germany and does deals that are closer to traditional merchant banking services, such as lending to large investment projects.

Gupta is a former Greensill shareholder and Greensill has supplied financing to Mr. Gupta’s 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 had regular dialogue with German regulators, and that the bank’s exposure to Gupta’s companies was significantly lower at that point than at the time the report was released.

Spokespeople for Greensill, Gupta and SoftBank didn’t immediately respond to requests for comment.

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. Greensill has also extended financing to lesser-known companies, including small startup 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’s move to cut off the Greensill funds comes at a challenging time for the financing upstart. Greensill 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.

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 Journal.

This article was published by The Wall Street Journal.