Fallout from Greensill Collapse Splatters British Government, As Taxpayers Face Big Losses

Downing Street’s dodgy dealings with Citigroup and Greensill show just how far the British government is willing to go to line the pockets of banks and other financial firms while bleeding taxpayers dry. 

The collapse of UK-based supply chain finance firm Greensill Capital continues to reverberate. In Germany the private banking association has paid out around €2.7 billion to more than 20,500 Greensill Bank customers as part of its deposit guarantee scheme after the bank collapsed in early March. But the deposits of institutional investors such as other financial institutions, investment firms, and local authorities are not covered. Fifty municipalities are believed to be nursing losses of at least €500 million.

Greensill’s biggest source of funds, Credit Suisse, has seen its share price plunge by almost a quarter. This is due not only to the fallout from Greensill’s collapse but also the impact of losses at its prime brokerage division caused by the stricken U.S. hedge fund Archegos, which are expected to reach €4 billion. The lender has warned of “considerable uncertainty” regarding the valuation of its supply chain finance fund. More than $5 billion of the roughly $10 billion invested in the fund remains outstanding.

Credit Suisse had assured clients in marketing documents that the debt in the supply chain fund was “low risk”. In one factsheet, it also said: “The underlying credit risk of the notes is fully insured by highly rated insurance companies.” At the beginning of March, that turned out not to be true. Some clients whose money remains trapped in the fund have threatened to sue.

Greensill’s biggest client, Anglo-Indian steel magnate Sanjeev Gupta, is on the verge of bankruptcy. Gupta’s GFG Alliance reportedly owes Greensill more than €3 billion. It began defaulting on its obligations after Greensill stopped lending to the group at the beginning of March. At the end of March Gupta requested a £170 million emergency loan from the UK government, which was duly rejected. Greensill’s administrator, Grant Thornton, has been unable to verify invoices underpinning some of the loans to Gupta. Companies listed on the documents denied ever having done business with the metals magnate.

Now the fallout is beginning to splatter the British government, which invited Greensill to participate in its Coronavirus Large Business Interruption Loan Scheme (CLBILS). This is despite the fact the company: a) wasn’t a bank; and b) was quite clearly already in deep financial trouble. Greensill’s participation in CLBILS allowed it to extend even more loans, this time government backed, to Gupta’s empire. Taxpayers will now probably end up holding the bag for those loans.

Special Treatment, Frantic Lobbying

Greensill Capital was the only non-bank financial firm to administer the emergency coronavirus loan schemes. The Treasury has admitted that Greensill was exempt from the capital adequacy and stress tests that would safeguard the public from risk when using other lenders. The apparent reason for this special treatment was that former UK Prime Minister David Cameron, who had joined Greensill as an advisor in 2018, was frantically lobbying Chancellor of Exhchequer Rishi Sunak to hand government loans to the embattled financial firm even as it spiralled toward bankruptcy.

Cameron is believed to have held share options in Greensill Capital worth tens of millions of pounds. Now they’re worth nothing.

Cameron’s ties with Greensill’s eponymous founder, Lex Greensill, date all the way back to 2011, when Cameron’s then-cabinet secretary, Jeremy Heywood, brought Greensill — then the head of Citi’s supply chain finance division — into 10 Downing Street as a special advisor. Greensill was still on Citi’s payroll when he joined the government. As an expose in The Sunday Times reveals, his brief was to convince ministers and senior civil servants to hire Citi to extend early payment to many of the government’s biggest suppliers.

Citigroup’s pitch was to pay the state’s suppliers in sectors where it apparently paid late, such as pharmacists awaiting NHS prescription fees.
[Maurice Thompson, the British boss of Citigroup who would later become chairman of Greensill Capital’s supervisory board] claimed this would help business owners — offering them an alternative to expensive loans — and the government. It would also be a smart investment for Citi: paying tens of billions of pounds in invoices on behalf of the most reliable of clients, the state, and taking a cut along the way.

This was not about finding a solution to a government problem, but rather a government problem that would fit Citi’s — and later Greensill’s — particular solution. The plan met stiff opposition in certain quarters. Given that government can borrow at ultra-low interest rates, some began asking why it needed to bring in Citigroup, or any investment bank for that matter, to pay its bills. Surely it made more sense to find a way to expedite its payments to suppliers rather than pay an intermediary to do so on its behalf.

Citi aimed to start small, by paying pharmacists that supplied the NHS, but its ambition was sweeping. It sought to roll out supply chain finance across the UK’s public sector, “paying invoices covering GPs, dentists, opticians, physiotherapists, the Ministry of Defence, Her Majesty’s Revenue and Customs (HMRC), Royal Mail and even the BBC.”

Dodgy Dealings

A group of civil servants tried to thwart the plan. But Greensill enjoyed the backing of Heywood, Britain’s “most powerful civil servant” at the time. Heywood gave Greensill his own team and access to any department he wished to address. He also made him a senior advisor and crown representative to Her Majesty’s Government on supply chain finance. 

What really irked some civil servants was the ambiguity of Greensill’s position. After Greensill had left Citibank, months after joining Downing Street, and set up his own supply chain finance firm (Greensill Capital) “it was unclear whose interests he was advancing: his former employer’s, his own firm’s or, as one would expect, the taxpayer’s.” Even more dubious was the way in which the government assigned projects to Citi (and later Greensill Capital), reports the Sunday Times.

At the time the pharmacy scheme was announced, there was no detail about who would benefit from it. The government never formally announced or published details of the policy.
 It is only thanks to the legal small print sent to pharmacists that details have emerged. For the first five years the scheme was operated by Citigroup. Then it was awarded to Greensill Capital, which ran it until the company’s collapse last month. The scheme has since been nationalised.
The precise circumstances in which the work was awarded to Citigroup remain unclear. The law states that unless the government is procuring services in an emergency, such as buying PPE during a pandemic or a helicopter in the middle of a war, it must create open and fair competition for companies that hope to deliver them.
However, last night the government admitted it did not sign a contract for Citigroup’s services. Nor did it create an open competition so that other banks could bid for the work. Despite the warnings of Peilow, it was handed out directly to Citi via an existing and secretive relationship between the bank and the Government Banking Service.
This chimes with an email sent by Greensill on November 12, 2012. He wrote: “It is important to note that there is no formal contract with Citibank with respect to the provision of supply chain finance.” He added: “This situation is entirely normal in the private sector as the bank is providing financing to our suppliers, not us.”
What is not normal is that a Wall Street bank was allowed to handle billions of pounds of NHS cash without a contract. Even by the government’s own standards it was exceptional: in 2018 it created a formal procurement process before handing the scheme to Greensill.
The evidence points to a stark conclusion: in the face of staunch opposition from civil servants, the government secretly gave a scheme to Citigroup, which came up with the idea, after its former head of supply chain finance, Greensill, drove the policy through Whitehall.

The only point of this scheme was to create easy money for financiers while bleeding taxpayers dry. As such, this scandal is not just about the losses taxpayers will have to bear as a result of the government’s underwriting of Greensill’s emergency loans to Gupta; it’s about the money that’s already been squandered by the government’s wholly unnecessary use of supply chain finance in the first place. 

It’s all eerily reminiscent of the disastrous Private Finance Initiative (PFI). Over decades successive Tory and Labour governments signed off on hundreds of debt-financed projects for which the rate of interest could be as much as 2 to 3.75 percentage points higher than the cost of government borrowing. It was a giant cash cow for the government’s corporate and banking partners. In 2018 it was estimated that the government would end up paying private companies £199 billion, including interest, between April 2017 until the 2040s for existing deals, in addition to some £110 billion already paid — for 700 projects worth around £60 billion!

The senior politicians and civil servants get rewarded for their loyalty later down the line. The civil servant in charge of all the government’s commercial contracts during Cameron’s administration, Bill Crothers, became a director at Greensill in 2016, a year after leaving government. In 2017 Lex Greensill was awarded the  CBE for services to the British economy in Queen Elizabeth II’s 2017 Birthday Honours. A year later his company won a juicy government contract. 

Happy Camping With Bin Salman

As for Cameron himself, he joined Greensill as a a special adviser in 2018, two years after leaving politics. In February 2020 he and Lex Greensill went on a camping holiday with Saudi Crown Prince Mohammed bin Salman, little more than a year after bin Salman had arranged the murder of Washington Post and Middle East Eye columnist Jamal Khashoggi. The holiday appears to have reaped dividends. In June 2020, a senior Greensill Capital executive spoke publicly about the company’s partnership with the Saudi Public Investment Fund, describing it as “part of the family” of the sovereign wealth fund.

According to most reports Cameron did nothing wrong. Last week he was cleared of breaking lobbying rules after it was concluded that as an employee of Greensill, he was not required to declare himself on the register of consultant lobbyists. But his already tarnished reputation is in tatters and he could face an investigation. Cameron himself refuses to even respond to the lobbying allegations. His ear-splitting silence speaks volumes about the state of British politics today.

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  1. Colonel Smithers

    Thank you, Nick.

    Around the turn of the decade, some colleagues and I at the banking trade association were working on such matters and what became the British Business Bank and Big Society Capital. The big five UK banks and, for trade finance, Standard Chartered were the participants in the better business finance task force. We were puzzled when Citi, whose then and still head of government affairs is a former Treasury official, began to sniff around and Vince Cable’s department began to lose interest and bypass the trade body and deal with Citi directly. In addition, the former head of government affairs at Morgan Stanley, Jeremy Heywood, then back in government and considered the greatest civil servant of his generation, began to take an interest in what the trade body was up to. At the time, the task force felt like a missed opportunity, but one can see why that had to be the case.

    One wonders if Heywood’s inglorious role in government, vide David Kelly and Julian Assange, and in both government and banking, the collapse of care homes, will get an airing.

    1. The Rev Kev

      Thank you Colonel. I took a look at Jeremy Heywood’s Wikipedia entry as it was very enlightening about what he is all about. Kinda like Boris and that no matter what he did wrong, there was always an element of Teflon about him and he always had friends in all the right places to protect and promote him-


      1. Harry

        Back in 1989, my job was briefing the UK delegation to the IMF back when Jeremy Heywood was one of HMTs IMF delegates. That Washington job was the ultimate high flyer’s appointment. It meant he was already marked down for greatness, and my then boss was obviously smitten by his boyish good looks and cutting remarks.

        I remember his brown leather jacket particularly well as he strolled around the Bank meeting the peons. He didn’t have the shoulders for it, and it was a questionable color.

        I asked a friend of mine in the home civil service what had propelled him through the civil service ranks so quickly. I was told he was “Francis Maude’s cupbearer”. Make of that what you will. Either way round, Jeremy was in favor with both New Labour and the Tories.

        1. Colonel Smithers

          Thank you, Harry.

          It appears that from the 1990s onwards politicisation meant that cupbearers would prosper, vide Kim Darroch and Matthew Ryecroft, drinking buddies of Alistair Campbell. Europe minister David Frost failed at this game and nurses the grievance to this day.

  2. Colonel Smithers

    Further to my earlier comment, stuck in moderation, FT contacts and I were wondering about the Murdoch owned Sunday Times stealing their thunder / a march and wondered if that was not Michael Gove wanting to embarrass Johnson and Sunak, whose jobs he covets.

    Should the Gupta empire be broken up, the 114,000 acres owned by different operating companies in Scotland will pose an additional problem. Would the Scottish government be happy for the UK government, if it bails out the group, or more foreign buyers, the only big buyers of late, to own that land.

    1. Nick Corbishley Post author

      Thanks, Colonel and Harry, for joining some of the dots and adding your own first-hand knowledge to the piece. Most appreciated.

  3. Steve

    An interesting piece. But the author keeps laying on the taxpayer myth thick throughout.

    While egregiously wasteful spending of public money is lamentable, the idea that the taxpayer “picks up the bill” is provably false.

    QE has almost perfectly correlated with HMG’s budget deficit throughout the pandemic.

    Any interest to be paid to the BoE holding these gilts is moot; the BoE is subordinate, and belongs, to HMG. You can’t owe yourself money.

    It would be so much easier to tackle these issues if the waters weren’t further muddied by myth peddling about the provenance of the sovereign currency.

  4. Mark

    Spot on, wonderful how “public money” is moved to the other side of the balance sheet with an asterisk…. “nothing to see here”

  5. Susan the other

    “Supply Chain Finance” businesses “are not banks.” Not so much as a charter? Well how interesting. They aren’t even banks. Just blood funnels. And just another argument for using only very small tax bases. We need an interdiction against any multi-layered financialization involving semi-public or semi-private organizations which operate without a strict charter out of “large tax bases”… like the treasury of an entire government. It’s pure embezzlement. So of course, it is not the least bit surprising that David Cameron has been caught with his fat hands stuck in the cookie jar. Tsk tsk. It is also a cautionary tale for implementing MMT, direct fiscal and social spending, because the privateers are already at the door asking for public-private partnerships and selling themselves as “responsible managers”. Let’s all have a good laugh at this mess. It deserves to be ridiculed.

  6. marku52

    “Cameron is believed to have held share options in Greensill Capital worth tens of millions of pounds. Now they’re worth nothing.”

    As Lambert is wont to say “Aww, that’s a shame…..”

  7. Dave in Austin

    This whole thread is wonderful!

    When I was young in DC I’d occasionally- very occasionally- have the opportunity to attend cocktail parties where I could ease-drop on real decision-makers quietly commiserating with each other after a long day at the office and two highballs. This thread is what they sounded like.

    Now I’m wondering “Who else is lurking out there reading NC?”

    These guys make American insider-crooks look like pikers. To quote from Mark Russell “Oh what have you done Billy Sol, Billy Sol…”. Maybe having a leak-prone senior civil service like in the U.S. isn’t such a bad idea after all.

    1. John Anthony La Pietra

      Allan Sherman, IIRC — a bit of “Shticks of One and Half a Dozen of the Other”:

      Oh, what have you done, Billy Sol, Billy Sol,
      Oh, what have you done, charming Billy?
      You took almost every cent
      From the US government,
      Which you spent on fertilizer, which is silly.

  8. ObjectiveFunction

    For those among us who are a little more amateur at financial engineering….

    1. Basically, Mr. Gupta was using his reverse factoring service (which as I understand it, is Greensill’s core business?) as an expensive revolving line of credit to fund his overextended and Covid-disrupted metals and whatever business operations?
    (Which is nice for him since working capital doesn’t count against the doubtless heavy covenants of his doubtless huge existing debt load?)

    2. And this evolved into large scale fabrication of non-existent payables? Which went blissfully unnoticed by Greensill and the various banks, until it blew up….

    Is that what happened here? Many thanks.

    1. Nick Corbishley Post author

      Yep, that more or less sums it up. Greensill also provided traditional factoring services — where a business would sell its accounts receivable (invoices) to Greensill at a discount in order to raise short term cash — but its main line of business was reverse factoring. It also provided an additional service called “prospective receivables finance”. As Matt Levine reports for Bloomberg, this is where things got absurd:

      The more advanced way that Greensill Capital worked is that sometimes it would sit down with a client and imagine who might one day become a customer of that client, and then imagine how much of the client’s product that hypothetical customer might buy from the client, and then Greensill would pay the client early for those entirely hypothetical receivables, and then Greensill would collect the money later from the customer, if the customer actually became a customer and bought things from the client. If not, Greensill and the client would keep rolling the loans over and hope that one day the customer would show up.

      This is called “prospective receivables finance” and is … uh … well, it’s weird? It is very different from traditional receivables financing. Normal receivables financing is safe and short-term lending: You give the client money for products it has already sold, and then you collect the money a few weeks later from real creditworthy buyers who have to pay you to keep getting supplies and operating their businesses. Prospective receivables financing is necessarily speculative, long-term, unsecured lending: You give the client money today in the hopes that it will build its business and attract new customers and sell them new products and bill them for the products and eventually, one day, you will collect on those bills.

      We talked about this a few weeks ago, when Bluestone Resources Inc. sued Greensill. Bluestone is a coal company that sells coal to steel companies, and it got a lot of “receivables financing” from Greensill against prospective receivables from steel companies it never met. When Greensill became insolvent, Bluestone sued, arguing that obviously this was meant to be long-term financing and that it shouldn’t have to pay it off until it turns the prospective customers into real ones.

      One problem with “prospective receivables finance” is that it is easy to confuse with fraud. Greensill was very much in the business of taking clients’ real customer receivables, giving the clients money, and collecting the money later from the customers; it was also very much in the business of taking clients’ entirely imaginary customer receivables, giving the clients money, and hanging out waiting to see if the customers ever materialized. This was all disclosed and understood and negotiated 1 ; Greensill knew which receivables were real and which were fake, and presumably it advanced money on different terms for the real and fake receivables. But as I type it, it all seems absurd, and if you were not deeply involved in the day-to-day relationship between Greensill and its clients, you might be shocked to learn that Greensill would lend a client money against “receivables” from “customers” who had never even heard of the client.

      1. Keith Willey

        It strikes me that receivable finance requires quite a bit of human intervention. There must surely be offices full of clerks sifting invoices, checking these against protocols for acceptance, querying what’s been collected etc? Where and Who are those clerks?

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