Lex was excellent at spending other people’s money, whether a government budget, or his employer’s expense account, or funds from the wealthy patrons who’d backed his start-up.
But if he was to make his billionaire dream a reality, he’d need even more access to even more people’s money.
That’s where the bank came in. Lex didn’t just want to disrupt the banks, he wanted to own one too.
In early 2012, investment bankers in the City were shopping around a German institution named NordFinanz Bank AG, known as NoFi. A pitchbook shared with potential buyers – a kind of sales document that bankers use for mergers and acquisitions – was doing the rounds in February and March 2012. NoFi was founded in 1927, in Bremen, at the height of the Weimar Republic. For most of its existence, the small bank had been a bit of a disaster, struggling from one near-collapse to the next and switching owners every few years. It had just a handful of branches and a few dozen staff. The bank took deposits from ordinary Germans, made loans to Germany’s Mittelstand group of small businesses, and provided financing for mortgages and car buyers too. Since the 1960s, NoFi had also been a provider of factoring services.
Over the past few decades, NoFi had been passed from new owner to new owner. Each time, a different strategic plan was put in place, but the bank mostly languished. By the noughties, NoFi was unprofitable and unloved, a mashed-up and confusing collection of failed ambitions. It even owned a campsite, acquired when a client went bankrupt. The German regulator, BaFin, had ordered the bank to scale back its business. NoFi often operated under restrictions imposed by BaFin.
Despite all that, ownership of the bank had one big upside – the potential to use it to acquire deposits that could be invested in something more profitable.
From around 2010, NoFi had another new set of owners, led by Stefan Allesch-Taylor, a British entrepreneur and financier. Tall and self-assured, Allesch-Taylor is a serial board member, film producer, columnist for The Times newspaper, coffee roasting company boss, academic and philanthropist. As professor of the Practice of Entrepreneurship at King’s College London, his views on starting and running a business are often sought out by journalists.
He once told the magazine Gentleman’s Journal that the key traits to being a successful entrepreneur are to be ruthless, to have a vision, be good at reading other people, hustle constantly, respect others, and to be good with money – for this last one, he wrote, ‘read really very, very mean with money . . . You wouldn’t think so watching the “burn” of big tech companies or the staggering losses of others but remember the stats – only a tiny percentage of new companies survive. If you can’t balance your monthly budget, it’s going to be a problem. Every penny spent has to be thought about before you spend it.’
The other NoFi Bank owners were an eclectic bunch too. They included Robin Saunders, a US-born banker who had risen to prominence in London in the late 1990s when she was one of the top dealmakers in the City. Born in North Carolina and raised in Florida, Saunders graduated from Florida State University. After college, she went into finance and eventually joined Citigroup, where she worked on securitizing loans – turning them into securities that are sold to investors. In 1992, she moved to the UK and her career took off. She landed at Germany’s WestLB bank, where she led a team trying to make a push into the City. Saunders embarked on a spree of deals across Europe. She worked on high-profile transactions for Bernie Ecclestone, the Formula One chief, and British retail titan Philip Green, and became a regular in the financial pages. The tabloids dubbed her the ‘Queen of the City’ and said she was worth hundreds of millions of pounds. Her fortieth birthday party, in 2002, had been a three-day event in Florence that reportedly cost £400,000, with 180 guests dining in a medieval palace and a thirteenth-century church.
Saunders’ reputation took a hit when she was forced to leave WestLB after a television rental company she’d helped finance went into administration, helping to push the bank to a €1.7 billion loss. In 2004, she set up a private equity company called Clearbrook Capital, which is based in London’s glamorous Mayfair district and counted the financier Lord Rothschild as a backer and Allesch-Taylor as a partner. A 2005 profile of Saunders included her notable quote: ‘I’m not going to do a dumb deal.’
The other key NoFi owner was Andy Ruhan, the property developer, who was also a Greensill associate. Greensill had arranged deals for Andy and benefited from his largesse too.
The management team running NoFi for this group of owners had tried to reposition the bank once more, with a focus on leasing plant and machinery and lending to small businesses. Their plan was that NoFi could fill a vacuum left by other banks getting out of this kind of business in the years after the financial crisis. But the turnaround project was less than straightforward. Among the many complications, there were a bunch of dud clients, such as 1860 Munich, Germany’s oldest professional football team (the less glamorous cousin of giants Bayern Munich), which was in poor financial health. Dealing with clients like 1860 in the politically charged atmosphere of the early 2010s was a massive headache. With German regulators breathing down their necks, demanding additional capital and more, the shareholders just wanted to get out. So, in 2012, the pitchbook circulating in London outlined a plan to revive NoFi with an injection of about €28 million of new capital that would steady its fragile balance sheet.
Lex came across as insanely ambitious, and eager to own a bank. Desperate perhaps. He also seemed to be in awe of Saunders, the celebrity banker who was known for her lavish parties. Lex was a minnow dealing with a group of sharks. He was smart, not naive. But it was easy to persuade him to invest in NoFi. Greensill agreed to a deal, initially investing as a minor shareholder, and later, by 2014, acquiring control of the bank.
Lex eventually forked out over $25 million for a business that had net assets of just $10 million. It was worth it, almost.
Within a few months, the NoFi name was no more. Rebranded as Greensill Bank AG, the German business was added to the global Greensill corporate family. Its annual report declared a shift in strategy. The bank would no longer run current accounts. It would stop processing cash transactions. Instead, Greensill Bank started targeting larger, longer-term deposits. And it started to use those loans to fund supply chain finance deals sourced by Greensill Capital. The bank paid better interest rates than you could get pretty much anywhere else in Germany, and attracted deposits from customers, including a slew of German municipal governments. As many as fifty municipalities deposited hundreds of millions of euros with the bank. Places such as the industrial city of Osnabrück, Giessen, the capital of the state of Hesse, and the medieval town of Monheim am Rhein all put their funds into Greensill Bank.
Lex also beefed up the bank’s credentials in moves that echo the way he courted respected names in London. He lured Eberhard Kieser to join Greensill Bank’s board in 2017. Kieser was slick, smartly dressed, hard-nosed. He had previously been a board member of the Auditing Association of German Banks – a sort of industry group that is responsible for maintaining financial sector stability. He instinctively knew how the German banking regulators thought and acted.
The bank also got a credit rating from the Berlin-based rating agency Scope. The analysis was tough in places and noted concerns about the rapidly growing bank but ultimately Scope gave it an investment grade rating – essentially a stamp of approval. It didn’t emerge till much later that the relationship was riddled with potential conflicts. First, Greensill signed an exclusive partnership agreement with a Scope subsidiary to provide ratings on its supply chain finance loans. Also, Maurice Thompson, the chairman of Greensill’s own board, was an investor in Scope and sat on its board. (Scope’s policies say that it won’t issue a rating to a company if a member of its board has more than a 5 per cent stake in Scope – Thompson fell outside this threshold.)
At first, Greensill Bank was a drain on the company. Lex had to make sure the bank maintained certain balance sheet ratios to satisfy the German regulator. But that meant funnelling as much as $5 million a year from other parts of the business. My sources said Greensill shifted transactions into the bank to help with its profitability, so that a receivables financing deal that made about 2 per cent a year in Greensill Capital was moved into the bank at a yield of around 5 per cent a year. The shortfall was covered elsewhere in the Greensill group.
But over the next few years, as Greensill Capital itself attracted billions of dollars in new investment, Lex was able to turn the bank into a key part of his business. He poured hundreds of millions of dollars more in to bulk up the bank’s balance sheet, which went from about €340 million in 2017 to €670 million the following year. By 2019, it was €3.8 billion.
That was crucial to the way Greensill would operate. With access to his own, significant balance sheet, Lex could move assets around more freely. He didn’t have to persuade investors to buy the loans he was selling. He could simply park them in the bank. Lex could run his business like a giant shell game, like a street hustler, shifting dollar bills around, hiding them in front of your eyes. He could take problematic loans out of Greensill Capital, or out of the SCF funds that were already in the works, and hide them in the bank.
It seemed like a smart plan, but it was deeply flawed.