The collapse of Greensill Capital provides a headache for many people, not least Lloyds Banking Group PLC (LON:LLOY) chief executive, António Horta-Osório.
The Lloyds boss is due to take over as chairman of Credit Suisse at the beginning of May.
When his appointment was announced at the end of last year, he might have thought his first bit of fire-fighting would be repairing the Swiss bank’s reputation after it admitted hiring private detectives to spy on two of its executives in 2019.
It’s fair to say things have moved on quickly since his appointment was announced and now the bank is reeling from a number of duff decisions regarding its relationship with the collapsed supply chain finance specialist, Greensill Capital.
Investigations, either by Credit Suisse itself or by various regulatory bodies, have been kicked off.
The Swiss banking regulator, FINMA, is sticking its nose in to see whether Credit Suisse’s capital reserves have been compromised by the Greensill debacle.
The Swiss bank reportedly lent Greensill US$160mln towards the end of last year even after the German regulator had signalled it was investigating a Greensill subsidiary, Greensill Bank, which was based in Bremen, Germany.
Credit Suisse is said to be still on the hook for about US$90mln.
Heads rolling in Zurich
Greensill’s business model 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 bought up invoices and securitised them.
Credit Suisse invested heavily in these Greensill securities and once it became apparent Greensill was going to the wall it froze four funds managing US$10bn of Greensill assets.
Earlier this week, Credit Suisse chief executive, Thomas Gottstein, revealed investors in the funds have received about US$3.1bn of their money back and the funds have another US$1bn or so to give back.
Credit Suisse’s annual report, published today, revealed: “there remains considerable uncertainty regarding the valuation of a significant part of the remaining assets, including the fact that the portfolio manager has been informed that certain of the notes underlying the funds will not be repaid when they fall due.”
Hence the involvement of the Swiss regulator, FINMA.
Heads have already starting to roll in Zurich, with Ulrich Koerner taking over as the head of Credit Suisse’s asset management business, which will be hived off into a separate division instead of being part of the international wealth division, which is currently is.
Three senior asset management employees who helped oversee the Greensill funds have temporarily stepped aside, according to news agency, Reuters.
Things must be really serious because according to the bank’s annual report, the payout and vesting of executive board members have been suspended until the dust clears.
Diabolic Liberty Steel situation
The Greensill Capital collapse is also a major headache for Liberty Steel, which is part of the GFG Alliance, the agglomeration of businesses built by Sanjeev Gupta and his family.
The GFG Alliance was Greensill’s biggest client and since the invoice buyer went into administration fears have been rising that the knock-on effect could see the loss of thousands of jobs within the Gupta empire, including the 11 steel sites owned by GFG that employ some 3,000 UK workers.
Ed Miliband, the former Labour Party leader and currently the Shadow Business Secretary, has called on the government to consider nationalising Liberty Steel to save jobs if the company cannot find alternative sources of funding.
Nationalisation used to be a dirty word – certainly back in the days when “Red Ed” was head of the Labour Party – but with the government effectively giving up on the privatisation of the railway system, not to mention the billions of pounds it has already spent trying to protect jobs during the pandemic, the idea does not seem so far-fetched.
At this rate, Boris Johnson will switch from writing hagiographies of Winston Churchill to writing about Clement Atlee, who trounced Churchill in the 1945 general election.
“If there’s one lesson we learned from this pandemic it’s that our strategic infrastructure, our resilience really matters and steel is a key part of our strategic infrastructure and resilience,” Miliband told the BBC,
“We cannot afford to let these jobs go. Government has got to make sure it doesn’t happen,” Miliband insisted.