Collapse of Greensill Capital II

Why were Credit Suisse and Greensill Capital working together?

Lex Greensill was a personal client of Credit Suisse’s Wealth Management business. Greensill pitched the idea that Credit Suisse create funds for its high net worth clients that would hold securitised supply chain receivables made up of Greensill invoices. These were then promoted as safe, highly rated and fully insured by Credit Suisse. 

How did the withdrawal of insurance coverage trigger the insurance?

Tokio Marine Management provided the insurance on the funds sold by Credit Suisse. The insurance aspect was vitally important as it provided protection that should companies selling invoices default on money owed on the funds the insurance firms could make up some of the losses.

Once this insurance was removed Credit Suisse had no option but to freeze clients’ investment supply chain funds. It warned that it could itself face a financial charge stemming from the collapse of Greensill Capital through its own direct lending of $190 million, more importantly its wealth management clients were likely to suffer significant losses on their supply chain funds when fully liquidated. By freezing the flow of money GFG Alliance fell into crisis as its flow of financing ran dry. Greensill was unable to replace the insurance with another insurer. 

The decision not to extend the insurance coverage was caused by concerns at the close and significant relationship between Greensill and Sanjeev Gupta and reports in the press of concerns as well as regulatory investigations in Germany.