It was April 2019, almost nine months since Global Asset Management had gated the funds run by Tim Haywood.
Friedman and his team had taken the drastic action to prevent investors withdrawing their money the previous summer to avoid a run on the funds. But now, Friedman and several others were gone. Haywood was gone. Sheard was long gone.
GAM was under the stewardship of David Jacob, who had been a non-executive director on the firm’s board since 2017. Jacob was a veteran of the asset management industry, and not without his own baggage. Back in 2001, he had been fired from a senior role at Merrill Lynch when a currency trader who worked for him had allegedly shifted trading profits around to favour some clients over others. Since then, he’d been blemish-free in a handful of senior roles at City asset management companies. When he took on the role of CEO at GAM, he said he would do it on an interim basis only. He was a safe but unexciting choice: exactly what the firm needed. It was bleeding cash following the Haywood revelations, and its share price and reputation were in the gutter.
Jacob’s priorities had to be: to calm the nerves of investors; to rebuild the business; to offload the remaining Greensill assets still stuck in Haywood’s funds, and to return money to clients.
On the first of these, he spoke to all the firm’s biggest investors, explaining that the Haywood problem was contained. It didn’t go beyond the funds Haywood had managed. There was no systemic issue. Some of the distributors of GAM’s funds – including the giant bank Credit Suisse – were given access to the firm’s files, including some files on Greensill and the Haywood funds, in order to quell their concerns. Credit Suisse had initially put all of GAM’s funds on a red list, not just Haywood’s funds, meaning it wouldn’t sell them to clients, but gradually gave them the green light after conducting their own due diligence on GAM.
Jacob also began to look for a new, permanent CEO. He’d promised his family he would only hold the role temporarily. And he began laying off staff to get costs down. So far, so straightforward.
Selling down the Haywood–Greensill investments was not so easy.
Despite what Lex said in public, there was no ready market for a whole lot of what was in there. A loan to a property developer backed by a stake in a disputed building. Bonds backed by cash flows from biofuel generators that didn’t work. An investment tied to a Russian-owned cargo plane. Where were the ready buyers for this stuff, especially now that it was tainted with the smell of financial wrongdoing?
GAM was also facing another dilemma. The poor quality of the assets, their true value and the lack of a market for them was outlined in excruciating detail in the Prytania report that backed up Sheard’s claims. But the more GAM said about it, the lower the firm’s chances of selling the assets to another buyer without incurring a big loss. It’s a dilemma many investors can find themselves in when they buy a dud. The more honest you are about the bad investment you bought, the less likely it is that you can pass it off to someone else.
The previous summer, GAM had set a deadline of 31 March 2019 to sell down the assets. Autumn, winter, spring all passed. There was a series of intense phone calls between GAM and Greensill. Lex dialled in from London. Jacob and GAM’s lawyers were on the phone from Zurich. Lex was angry, always on edge, always demanding. It was a strange – and implausible – position for him to adopt given Greensill’s central role in the whole mess. He might have been more cooperative, made more of an effort to appear accommodating. But the situation was also desperate for Greensill. The assets Lex had sold Haywood were stranded in his gated funds. If they couldn’t be shifted elsewhere, then eventually GAM would be forced to try to collect on the loans to Atlantic 57, Gupta and others. And then they might discover that those borrowers simply didn’t have the money to pay back. For Greensill, the situation was existential and Lex was fuming.
He seemed especially furious about stories in the media that focused attention on Greensill. These kinds of stories don’t help us get the right value for the assets you want us to sell, he told GAM’s team. What are you going to do to stop journalists from writing about us? he demanded. It was another strange response to the situation. There was nothing anyone – not even Lex’s PR guy, James Doran – could do to stop journalists from attempting to sniff out the problems at the core of the whole affair.
Jacob remained calm. The only thing that mattered was liquidating the Haywood funds on the best possible terms. But that was not going as planned.
By April, Jacob had to acknowledge GAM had missed the deadline. In public, he was stoic. In a statement when the firm announced its results that month, he said he was focused on rebuilding GAM and thanked clients for their patience. The hard work to sell the assets at a good price was ongoing, he said.
The reality was still more complex. Almost all the asset sales were complicated. Greensill had been able to access other sources of funds – Greensill Bank, for instance – to clean up some of the problem assets. He was able to use cash from nascent funds he had recently opened with Credit Suisse and the new equity he had from GA. These sources essentially helped him bail out the Atlantic 57/Ruhan loans and the loans Haywood had made to effectively fund Greensill itself.
He also tapped Morgan Stanley. The bank for several years had acted as a kind of regulated intermediary between Greensill and the investors in the securities he created. Morgan Stanley provided investors with pricing information and other data about the investments that Greensill sold. Lex turned to the bank again in his moment of need. Morgan Stanley used a special purpose vehicle (SPV) to repackage about £220 million of Greensill-arranged bonds related to Gupta businesses held in the GAM funds. The bank then sold them on to their own clients.
The Panamera assets, backed by lease payments tied to a Russian-owned cargo plane, had been put up for auction by GAM in late 2018. Greensill had surprised GAM’s managers by coming up with the highest bid. His plan, apparently, was to take the assets off GAM’s books at the same value he’d sold it to them, and then pass it on to another buyer. In reality, after winning the bid, the transaction stalled for eight or nine months as Greensill struggled to find another taker who wasn’t put off by the Russian connection.
The most challenging assets to deal with, though, were the Little Red Boxes – the ‘LRB’ biofuel generators. GAM was sitting on £650 million worth of securities tied to years of cash flows from these boxes, but those cash flows were looking far from certain given the LRBs weren’t yet working. Who would be willing to buy assets like this? Lex came up with the answer. He had somehow persuaded Gupta to buy back the LRB bonds.
At GAM, this was cause for optimism, but how could Gupta afford it?
Lex was already working on a new, ambitious Gupta Family Group (GFG) deal. Sanjeev Gupta had been eyeing a group of steelmaking assets across Europe. These businesses were owned by the giant Indian steel company ArcelorMittal, which was under pressure from European regulators to sell down part of its business over concerns about competition. There were few buyers. Chinese steel companies had the funding, but they were tough competitors of Mittal. Few other businesses had the scale, funding or appetite to take the facilities on.
Gupta was willing, but he would need funding. The steel businesses would cost €740 million. European regulators demanded that it couldn’t all be paid for with debt. Gupta scrambled to grab cash from around the GFG empire, using facilities he owned in Australia and elsewhere to raise more funds there, and then funnelling it into the European acquisition. Europe’s regulators were satisfied. Then, having bought the steelmaking facilities – in Romania, and the Czech Republic and elsewhere – for €740 million, Gupta used them to secure €2.2 billion in new loans from Greensill. And with that trick of financial engineering, he had enough to buy back the LRBs from GAM.
As this dizzying alchemy was taking place, Jacob, the temporary GAM CEO, had been sweating on whether Gupta would come through on his new deadline for closing the funds in mid-July.
There was little contact from Gupta or Greensill. In typical Gupta–Greensill style, the deal was arranged informally, not much more than a nod and a handshake. Jacob was getting concerned. He even suggested that if Gupta and Greensill wouldn’t hurry up and buy the assets back, then maybe GAM would put them up for sale in the open market. Then the world would decide how much loans to Gupta were really worth.
The sale of the LRBs was dragging on and on with nothing happening. When the money suddenly turned up in the summer of 2019, it was a huge relief, though at first GAM wasn’t sure whether to make an announcement. Typically, the buyer sends instructions on how and where to transfer the bonds. But there were no instructions from Greensill or Gupta. It was highly unusual, though it was also typical of the shambolic nature of dealing with Greensill and GFG. Eventually, GAM figured out a way to make the transfer although no instructions ever arrived.
In July 2019, GAM announced that it had finally sold the last of the ARBF assets. In the firm’s London office, it was cause for celebration. Greensill and Gupta were finally someone else’s problem. Some of the senior investment managers – former colleagues of both Sheard and Haywood – pulled out bottles of champagne and popped the corks into the ceiling of their St James’s office.
At Greensill, there was celebrating too. Many of Lex’s top executives had thought the GAM affair would bring the company crashing down. The fact it hadn’t done so went a long way to helping secure Lex’s reputation for always finding a way out of a hole, no matter how deep and dark. For Lex’s supporters, his Houdini act only proved Lex’s special genius.