The founding father of Greensill Capital has denied allegations from MPs that his collapsed finance agency was a “fraud” or a “Ponzi scheme”.
Lex Greensill instructed MPs on the Commons Treasury Committee that he accepted “full duty” for Greensill’s demise however mentioned that the last word purpose his firm failed was as a result of Tokio Marine and different insurers withdrew cowl.
MPs on Tuesday grilled Mr Greensill over the agency’s collapse. which has thrown David Cameron’s lobbying work for the agency underneath the highlight. The corporate supplied supply-chain finance, which ensures that suppliers receives a commission extra shortly by their prospects than regular.
Greensill paid suppliers after which collected the cash from the client later.
Conservative MP Felicity Buchan instructed Mr Greensill his enterprise mannequin was “merely unsecured lending… dressed up as receivables”.
However Mr Greensill responded that the corporate solely ever supplied funding that was secured towards actual property. “At no time was there a place the place the property didn’t exist,” he mentioned.
Mr Greensill confirmed that his agency had made loans totalling £418.5m underneath the federal government’s coronavirus lending schemes, of which 85 per cent – £334.8m – was assured by the British Enterprise Financial institution.
However he declined to say how a lot of this was lent to firms operated by Sanjeev Gupta, the proprietor of Liberty Metal. He rejected the suggestion of former Treasury minister Lord Myners’ that the affair had price the taxpayer £3-5bn, insisting: “There was no loss to the taxpayer.”
Committee member Siobhain McDonagh accused Mr Greensill of “fraud” and advised his intention had been to switch publicity to Gupta firms “onto the federal government books, and in the end the British taxpayer, utilizing a former prime minister to help your case”. Mr Greensill replied: “I disagree together with your evaluation.”
Committee member Rushanara Ali requested Greensill: “Lord Myners has a degree doesn’t he? it. It’s a Ponzi scheme.
“Frankly, it smacks of fraudulent behaviour, just like the sorry of stuff carried out by the likes of Madoff within the monetary disaster. That’s what it smacks of, it doesn’t smack of a correct course of the place individuals can get provide chain finance that’s dependable and credible.”
Committee member Dame Angela Eagle mentioned that Greensill appeared to have been promoting securitized investments primarily based on projected future property which will have been not more than ”a figment of anyone’s creativeness”.
“What sort of due diligence was carried out once you securitise these potential receivables from the GFG group?” she requested. “As a result of it seems more and more … just like the case that you simply have been securitising invoices that didn’t actually exist on flows of cash that weren’t due. “
“That has meant that the Credit score Suisse buyers have misplaced massive quantities of cash, that heaps and plenty of individuals have misplaced massive quantities of cash, as a result of they’ve invested in bonds and in so-called property which you created and securitised, which have been truly unsecured and excessive threat not low threat, as they have been marketed by you.”
Responding to questions on the reason for Greensill’s collapse, the corporate’s founder mentioned: “Our precept insurance coverage supplier determined to not renew their insurance coverage regardless of being in discussions round renewing their insurance coverage as much as the hours earlier than, in the end, Credit score Suisse decided they might not fund our enterprise.
“It was that withdrawal of insurance coverage capability which resulted in our failure.”
Mr Greensill additionally criticised insurance coverage regulation which he mentioned labored in a “counter-cyclical” method.
He defined: “That’s, when the market turns down and the chance of default of companies will increase, to ensure that the solvency necessities of the insurer to be met they have to present extra capital as a result of the chance of default within the companies they’ve insured goes up in a disaster.
“And that’s what occurred throughout Covid. So what occurred was many insurers wanted both extra capital to supply the identical quantity of canopy, or they wanted to chop cowl, with a view to match inside the restricted quantity of capital that they’d.”
The listening to got here because the Metropolis watchdog launched a probe into Greensill’s failure, which has price 1,000 jobs. It’s feared hundreds extra jobs may go at firms that Greensill financed, together with Liberty Metal.
The Monetary Conduct Authority (FCA) is formally investigating how two Greensill firms failed. It is usually wanting into the truth that a type of firms piggybacked on the licence of one other agency to permit it to function within the UK.
Greensill used a rule that permits monetary companies to sidestep regulators’ vetting processes by turning into “appointed representatives” of different firms which have already been accredited. The accredited firm is meant to vouch for and oversee the conduct of its appointed representatives.
FCA boss Nikhil Rathi acknowledged that there have been a number of allegations concerning the circumstances during which Greensill failed, “a few of that are doubtlessly legal in nature”.
“We’re additionally co-operating with counterparts in different UK enforcement and regulatory companies, in addition to authorities in numerous abroad jurisdictions,” he mentioned in a letter to MPs on the Treasury Committee, launched on Tuesday.