ALEX BRUMMER: Greensill was a scandal on an epic scale. Yet STILL our watchdogs failed to bark
Visitors ushered into the inner sanctum of Greensill Capital’s offices on the Strand in central London could have been forgiven for thinking they were meeting a world statesman.
Behind the desk of founder Lex Greensill was a wall of photos of the Aussie son of a sugar-beet farmer in the company of political leaders including Barack Obama and David Cameron.
Yesterday, Mr Greensill was again in the company of politicians, but in less salubrious circumstances.
He was being grilled over a webcam by the Treasury Select Committee about the collapse of his finance group, which became a political cause celebre after former Prime Minister David Cameron — who was an adviser to Greensill Capital — desperately lobbied Cabinet members, senior Treasury mandarins and senior staff at the Bank of England on behalf of the company.
While David Cameron’s brazen behaviour has stolen the headlines, what has escaped attention is the shattering impact of the debacle at Greensill Capital. Pictured: Cameron (left) and Greensill in Saudi Arabia in January 2020
Cameron, who stood to make tens of millions if the group made it to the quoted markets rather than collapsed, will himself be in the dock before MPs tomorrow.
But while the ex-PM’s brazen behaviour has stolen the headlines, what has escaped attention is the shattering impact of the debacle at the UK-based group. It has sent shock waves across the globe, with serious repercussions in countries from Australia to the U.S., Germany and Switzerland.
Not only has it triggered one of the most toxic and far-reaching financial crises of our time, it has also exposed an enormous and terrifying failure in enforcement over the British financial system.
The implosion of Lex Greensill’s organisation far eclipses other recent business collapses, such as that of the investment scheme London Capital & Finance (LCF), which went into administration in January 2019 with investors losing hundreds of millions.
It is more far-reaching even than the disintegration of disgraced fund manager Neil Woodford’s Equity Income Fund, which was suspended with £3.7 billion of investors’ money trapped in it.
Indeed, to my mind the Greensill affair has echoes of the Lonrho scandal of 1973, which led to Prime Minister Ted Heath lashing out in the Commons against the ‘unacceptable face of capitalism’, and was among the factors that led to Heath’s decisive defeat by Harold Wilson’s Labour in the 1974 election.
The lasting legacy of Greensill will not be Cameron and his opportunism, but the damage the company has wrought across the world.
In Britain, Lex Greensill’s enterprise — which stands at the epicentre of a labyrinthine, global financial structure — threatens the future of steel and metals production, and brings free-market capitalism into disrepute.
It has cast a terrible pall over Credit Suisse, the Zurich-based bank. This is because, in echoes of the 2007-09 financial crisis, Credit Suisse took on dodgy Greensill credits loaned against invoices, then sliced and diced them into neat packages of securities, and sold them on to unsuspecting investors.
They were comforted at the time by the fact that they were insured by the global insurance giant Tokio Marine. But then the insurer withdrew its cover and the value of the loans imploded.
In Germany, the collapse of Greensill Bank, which had billions of euros in deposits, triggered a criminal probe by regulators. In the United States, the businessman and Republican Governor of West Virginia, Jim Justice, has launched legal action against Greensill in the Manhattan federal court, claiming his mining enterprise Bluestone is the victim of ‘material misrepresentations’.
Lex Greensill was being grilled over a webcam on Tuesday by the Treasury Select Committee about the collapse of his finance group
There is a huge claim against the company from Japan’s multi-billion investment fund Softbank. And in the town of Bundaberg, in Queensland, Australia, Lex Greensill’s spiritual home, his sprawling enterprise has been put into insolvency with debts of £3.6 billion.
Also in Australia, New York’s Citibank is seeking wind-up orders against two steel and metals companies controlled by the controversial magnate Sanjeev Gupta, after billions of dollars of Greensill loans were secured against plants owned by him. Credit Suisse is also seeking to lay claim to steel assets in Australia.
Meanwhile, Gupta’s GFG Alliance empire employs 30,000 people across several continents, including up to 5,000 at his Liberty Steel group in Britain — and the jobs have seldom looked more precarious.
What is so shocking about all this global mayhem is how it was allowed to happen. How did Greensill Capital, with its opaque financing model, grow into a financial group making tens of billon pounds worth of loans, in plain sight of UK regulators, the Bank of England and the Financial Conduct Authority (FCA), without anyone blowing the whistle?
Greensill’s bank, enthusiastically backed by the late Cabinet Secretary Jeremy Heywood, exploited gaping loopholes in City regulation. The safety net put in place by the Tories after the financial crisis of 2007-9 — in which dodgy loans were sold round the world — was meant to have sealed the system tight so it could never happen again.
Cameron, who stood to make tens of millions if the group made it to the quoted markets rather than collapsed, will himself be in the dock before MPs tomorrow
Yet it turns out that only one small subsidiary of Greensill Capital, its securities arm, was policed by the FCA.
As for the Bank of England, under City reforms pushed through by former Chancellor George Osborne, it was given responsibility for financial stability and produces regular reports which are meant to provide an early warning of potential fissures in the system.
Yet no red alerts as to the risks posed by Greensill’s high-risk financing methods were made public. This, in spite of fierce warnings about Greensill Capital from former City Minister Paul Myners in dozens of questions put down in the House of Lords starting in June 2019 — long before the name Greensill became famous as a result of David Cameron’s role.
It is particularly embarrassing for the UK authorities that, while they have sat on their hands, their counterparts across Europe have been very active. In Germany, the collapse of Greensill Bank, with hundreds of millions of euros of debt, is the subject of a formal investigation by the Frankfurt regulator BaFin and a criminal inquiry by prosecutors.
Credit Suisse, meanwhile, has cleared out a cadre of its top officials, and raised new capital on the Swiss stock market to repair its balance sheet. Former Lloyds Bank chief executive Antonio Horta-Osorio has been drafted in to clean up the mess.
The Swiss financial regulator FINMA has already begun interviewing the executives responsible for catastrophic damage to the reputation of Swiss banking.
In Britain, however, calls in this paper and elsewhere for a full inquiry into the regulatory failures behind the Greensill collapse have largely been ignored. The Tory majority on the Treasury Select Committee, headed by Mel Stride (which grilled Bank of England Governor Andrew Bailey over the collapse of the less globally significant LCF), initially ruled out holding hearings.
It was only after David Cameron’s questionable activities as an adviser made damaging headlines that the committee decided to take evidence from Lex Greensill, the Bank of England and others.
And it has taken until now for a formal inquiry by UK enforcers to be launched into a debacle which unfolded under their noses.
But far more outrageous is that this unstable financial conglomerate was given free rein to trample over businesses and consumers across the globe — and no one in London, where it was based, did a thing about it.
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