A new book about the business exploits of the boy from Bundaberg is flying off the shelves in his home town as court battles continue over Greensill Capital’s implosion.
One of the mysteries of Lex Greensill is why the boy from Bundaberg was so obsessed with creating a global financial services empire that he pursued growth at all costs – until his firm, Greensill Capital, blew itself up.
Did the Queensland farmer’s son just want to be rich? He certainly enjoyed what money could buy: handmade suits, private planes and taking rooms in some of the world’s fanciest hotels, including London’s Savoy.
Sanjeev Gupta was the biggest customer of Lex’s Greensill Capital, while former UK prime minister David Cameron went to work for the firm as a lobbyist. David Rowe
Lex also coveted status. His firm’s business cards – bigger than the standard size, printed on thick cream stationery and etched with Greensill Capital’s green logo – were made by Smythson, a luxury goods company that holds royal warrants and whose creative director used to be Samantha Cameron, wife of former British prime minister David Cameron.
When he managed to nab a gong – Commander of the Order of the British Empire – in 2017 for services to the UK economy, the certificate was shown off in the lobby of the firm’s office on one of London’s most famous thoroughfares, the Strand.
And Greensill Capital’s office initially had wood panelling and a suit of armour because Lex “wanted it to look like Rothschild”.
These are just some of the colourful details that emerge from Duncan Mavin’s book, The Pyramid of Lies: Lex Greensill and the Billion-Dollar Scandal.
But perhaps the most important insight from the London-based journalist and early sceptic of Greensill Capital’s business model is that Lex made the fatal mistake of believing he was the smartest person in the room.
Mavin writes that Lex, who wore a suit and tie in the office on weekends after joining Morgan Stanley in the mid-2000s, was so confident in his own abilities that he told colleagues he would one day be knighted.
Lex, whom Mavin describes as a “compelling salesman”, deflected criticisms of his business model and surrounded himself with people who shared his vision rather than those, such as the firm’s own chief risk officer, who challenged it.
Ultimately, Lex’s supply chain finance firm, which once boasted of having extended $30 billion of financing to more than 1.3 million suppliers in more than 50 countries, imploded suddenly.
Even when Greensill Capital was running short of cash in late 2020 and plans for an initial public offering were being put on hold, Lex seemed to be in denial, sending out bottles of champagne and Fortnum & Mason hampers to the firm’s staff members for Christmas.
Lex has kept a low profile since the firm declared insolvency on March 8, 2021. His only public remarks were made last year when he was summoned before the British parliament’s treasury committee.
While Lex said he took “full responsibility” for the hardship suffered by his clients, their suppliers and investors, it was an insurance company that he blamed for sending his firm under.
“It is deeply regrettable that we were let down by our leading insurer, whose actions ensured Greensill’s collapse, and indeed by some of our biggest customers,” Lex said.
The firm’s key insurer, a small Sydney-based trade credit specialist named The Bond & Credit Co, was indeed crucial to Greensill Capital’s complicated business model.
But despite BCC’s owner, Japan’s Tokio Marine Management, clearly warning in writing in September 2020 that it would not renew policies expiring on March 1, 2021, Greensill Capital was still scrambling up until the deadline to try to renew its insurance. It even went to court to try to force insurers into extending their coverage.
Big court battles are now under way between BCC – which used to be half-owned by the Insurance Australia Group – and the institutions that bought securities from Greensill Capital, including Credit Suisse, which has to date filed 18 insurance claims worth $US2.2 billion.
Any recoveries are expected to take years. BCC has alleged Greensill Capital acted “fraudulently” by failing to disclose material information and has said it will not pay out on insurance policies.
Mavin started raising questions about Greensill Capital in 2019, writing articles for Dow Jones publications including The Wall Street Journal and Financial News.
The stories questioned some of the firm’s business practices, including possible conflicts of interest with Tim Haywood, the investment director of a fund that Greensill Capital set up with Swiss asset manager GAM.
Haywood, who failed to declare gifts from Greensill Capital (including the use of one of its four private planes for a personal trip to Sardinia and an invitation to attend a charity dinner at Buckingham Palace) was fined £230,037 by the UK’s Financial Conduct Authority this year.
When Mavin first met Lex in London in September 2019 and asked about loans Greensill Capital was making to some of its riskier clients, he claims the meeting ended with Lex slamming his first on the table.
A month later, in October, Lex marched into The Australian Financial Review’s offices in Sydney to complain about its reporting. The paper had been running stories on how big blue-chip companies such as telecoms group Telstra and construction group Cimic were using Greensill Capital’s services to smooth out cash flows and lengthen the time they took to pay suppliers.
Cimic had been telling suppliers that if they wanted to be paid earlier than two months, they could go and receive their money from Greensill Capital – after paying the firm a fee for the privilege.
Lex, who was on the verge of hiring former foreign minister Julie Bishop to help him spruik his products to the federal government (David Cameron had opened many doors for his firm in Downing Street), was worried that the Financial Review’s stories were hurting his firm’s ability to win new clients in Australia.
He claimed the firm’s schemes were not “evil” and that he was trying to “democratise capital”.
However, as scrutiny of the schemes in Australia by the small business ombudsman intensified, Lex agreed in early 2020 to stop Greensill Capital’s clients using its services to delay paying suppliers – but only in Australia.
Lex needed to attract new customers because, at the time, he was trying to wean Greensill Capital’s dependence off its biggest customer, GFG Alliance boss Sanjeev Gupta.
Many banks and firms provide supply chain finance. In its most simple form, it involves financial institutions such as Greensill Capital acquiring invoices from suppliers to a company, and paying the suppliers most of the value of the invoice (keeping a small amount as a fee.) The institution collects the money owed on the invoice from the company at a later date.
Lex Greensill grew up on a Bundaberg farm.
Lex had been involved in supply chain finance in one form or another since the late 1990s, when he took a job in Sydney with businessman Robert Cleland developing a new business called OzEcom that sought to pay invoices electronically. But it didn’t work out.
After doing an MBA at the University of Manchester, Lex joined Morgan Stanley’s trade finance team. Even then, he was pushing the boundaries, Mavin says, “proposing deals that were much more complicated than the simple supply chain finance model, relying on multiple layers of default protection or complex structures and funding methods”.
Lex jumped over to Citigroup, where he gained a reputation for “lavish spending” (such as a €4000 expense claim for new clothes and a hire car after he was briefly stuck in Copenhagen).
In 2011, frustrated at being unable to convince his bosses that the potential market for supply chain finance could stretch well beyond the bank’s existing customers, Lex – then aged in his mid-30s – started his own firm.
His timing was good. In an era of low-interest rates and cheap finance, Lex was able to pitch Greensill Capital to deep-pocketed investors such as US private equity group General Atlantic, which gave the firm $US250 million in return for a 14 per cent stake, and Japanese multinational Softbank, which stumped up $US1.5 billion.
But Greensill Capital’s business was anything but simple. Lex wasn’t content “running a few billion dollars of supply chain finance programmes”, writes Mavin. “Lex wanted to finance every single receivable in the world.”
While the firm bought some invoices from big solid companies with strong credit ratings such as Airbus and Ford Motor, it bought many of them from junk-rated companies – such as the steel-making entities owned by GFG Alliance.
To make matters more complicated, Greensill Capital arranged to also buy billions of dollars of “future receivables” – invoices that might be issued at some point in the future but didn’t actually exist yet.
About 11 per cent of Greensill Capital’s $US142.9 billion in asset flow, or $US15.7 billion, came from future receivables in 2020, with a big proportion linked to GFG Alliance.
Duncan Mavin, author of “The Pyramid of Lies”, started asking questions about Greensill Capital in 2019.
Instead of holding all the invoices on its own books before collecting the money owed on them, Greensill Capital packaged them up and sold them off to big institutions such as Credit Suisse and Swiss asset manager GAM.
Most of the future receivables were sold to a bank that the firm had acquired in Germany, Bremen’s NordFinanz Bank, which held money from German depositors including municipal authorities and had been renamed Greensill Bank.
By 2020, Germany’s regulator, BaFin, had started investigating Greensill Bank’s accounts after a whistle-blower raised questions about allegedly fraudulent invoices.
The German regulator froze the bank’s assets a few days before Greensill Capital collapsed, saying the bank had been unable to show evidence of the “existence of receivables” that it had bought from GFG Alliance.
To convince institutions such as Credit Suisse to buy packaged junk-rated invoices, the securities needed to be insured so the institutions would still be paid if the entities that owed money on the invoices defaulted.
But BCC’s new Japanese owners became worried about the risks it was taking on and stopped providing insurance altogether. Most big global insurance companies had already baulked, leaving Greensill Capital with nowhere else to go.
Mavin likens Greensill Capital to “a financial intermediary with an appetite for convoluted corporate chicanery”, but doesn’t come to any conclusions on whether it actually committed fraud.
Regulatory investigations in several countries are still under way and the fine details of exactly what information Greensill Capital gave its insurers and how it accounted for its cash flows in and out of Greensill Bank are yet to emerge.
Lex told the UK’s treasury committee last year that he was not a “fraudster” and claimed that “all our investors understood exactly what it was that they were purchasing”.
Back in Bundaberg, where Lex’s brother Peter (who owned shares in Greensill Capital but cashed them out before the firm collapsed) grows sweet potatoes and sugar cane at Greensill Farming, Mavin’s book has been flying off the shelves.
It was the top-selling book in August at the local Dymocks bookstore, which has run out of copies and is waiting for more to be delivered by the publisher.
Peter’s wife, Suellen Cusack-Greensill, slammed the book, posting on her public Facebook page that it was “full of lies and propaganda”. The post was later deleted.
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