Investment banking company Credit Suisse allegedly provided Greensill Capital (Greensill or group) funding to set up an in-house insurance firm.
Greensill, the now-collapsed supply chain financial group, lost its key insurance policy when its main insurer refused to renew its policy – hastening its demise.
The Financial Times revealed that Credit Suisse, which had a deep relationship with Greensill, provided the group with a $140 million loan in October 2020, less than five months before its collapse. The documents showed that part of the loan’s proceeds would be used to set up a “captive insurance firm” to provide the group with coverage for risky lending it carried out, according to people familiar with the matter.
A person involved in the negotiations around the loan deemed the deal “mind-boggling” that Credit Suisse believed that “Greensill would be allowed to build an insurance company,” despite the growing issues it was facing at that time.
On September 1, 2020, before Credit Suisse finalised the loan, Australian insurance firm The Bond and Credit Company – owned by Tokio Marine – confirmed that it would not renew a crucial policy that expired in six months.
Credit Suisse informed the Financial Times that it was “not informed about any insurance discontinuation until February 22, 2021.”
“Credit Suisse continues to pursue all possible angles in order to recover cash for investors in the supply chain finance funds,” the bank said, as reported by Financial Times.
After Greensill’s collapse, Credit Suisse was able to recover the loan as it had a first-ranking charge across the firm’s assets – with Financial Times reporting that the loan’s collateral included invoices to companies that denied ever doing the business stated on the documents. The bank has also overhauled its risk management safeguards since Greensill’s collapse and after losing $5.5 billion on the implosion of Archegos Capital.
Since its collapse, Greensill creditors have shown concern over if insurance contracts will pay out after the group’s collapse in 2021. Meanwhile, Lex Greensill – who previously blamed the non-renewal of his company’s trade credit insurance for the business’s demise – and other ex-directors of the insolvent firm are expected to face disqualification proceedings.