Greensill Capital reportedly set to file for insolvency in the UK

Greensill Capital, the controversial Australian lender, is preparing to file for insolvency in the UK, according to numerous newspaper reports. The company is famous – or infamous, if you prefer – for being advised by David Cameron, the former UK prime minister and inadvertent facilitator of Brexit. US private equity outfit Apollo Global Management is said to be negotiating to buy the choice bits of the supply chain finance specialist, which has already sought protection from its creditors in Australia after two Swiss banks signalled their intention to close funds linked to the business. Credit Suisse suspended around US$10bn of funds linked to Greensill, saying on Monday it had doubts over the true value of the funds, while the following day Swiss asset manager GAM Holdings announced it would close its US$842mln Greensill supply chain finance fund. The apparent collapse of Greensill will set alarm bells ringing as its business has echoes of the collateralised debt obligations (CDOs) that were said to be behind the financial crash in the first decade of the current century, except in this case instead of parcelling up mortgages and selling them on Greensill buys up invoices and securitises them. From a supplier’s perspective, the practice of accepting a small “haircut” on the money it is owed by a customer in return for immediate payment makes sense in terms of alleviating cash flow problems; however, it can also disguise rising levels of debt, as happened with collapsed contractor Carillion, because accountants do not treat supply chain finance deals as debt. Greensill’s current problems came to light after the German banking regulator, which has a representative placed inside Greensill Bank, a Bremen-based subsidiary of Greensill, took over day-to-day control of the bank, according to reports from news agency Bloomberg and the financial daily, The Financial Times. Apollo’s rescue deal, if it pulls it off, should see it take a chunk of the supply chain financing contracts while insurance cover is likely to offset losses for others caught out by Greensill’s decline.