There was one further, important revelation from that April 2020 story I wrote about the Vision Fund companies that were getting loans from the Credit Suisse funds. A spokesperson from the bank pointed out that investors were protected by insurance provided by several trade credit insurance companies. But that comment only served to highlight another looming issue that I had been talking to the Swiss bank about for several months.
The marketing materials for the funds repeatedly claimed that a diverse group of insurers were providing coverage. That was not accurate. A couple of high-profile insurers already flat out refused to work with Greensill because of unsavoury run-ins with Lex in the past. AIG, one of the biggest trade credit insurers in the world, had steered clear of Lex for years. And other big insurers that worked with him seemed cautious – they didn’t like to talk in public about Greensill and limited their exposure to the business.
As a result, instead of a diverse pool, the insurance coverage for the Credit Suisse funds was dominated by a single, relatively unknown Australian firm called Insurance Australia Group or IAG. And within IAG, all the Greensill business was conducted through a single, small unit called The Bond and Credit Company (TBCC). This was a concern that Greensill’s own internal risk managers had highlighted for months.
In June 2019, I’d asked Credit Suisse too about this arrangement.
In my meeting with senior Credit Suisse staff in Zurich in late 2019, I pointed out that about 40 per cent of the insurance was with IAG at that time. At the time, given the size of the funds, that meant IAG was providing coverage for about $800 million in underlying loans. That was a huge amount for an insurer of IAG’s size. No other insurance company was providing anything like that level of coverage, and most of the others covered just a tiny proportion of the funds overall – typically less than 1 per cent or 2 per cent.
There was surely a risk that IAG had bitten off more than it could chew, and that it would not be able to cover more Greensill assets. That would limit the potential for Greensill and the Credit Suisse funds to grow.
I thought I had found a potential flaw. But the bankers took the wind out of my sails. They told me that there was a new rule in the works, which would limit the amount of cover provided by a single insurer of the funds to just 20 per cent of the underlying loans. The purpose of the rule was to avoid too much concentration in one insurer and spread the risk more broadly. It made a lot of sense.
The only problem was that – by April 2020 – the proportion of coverage IAG was providing had grown – to 51 per cent. That was even more startling, given the funds themselves had about doubled in size. It meant IAG was now responsible for insurance on about $3.5 to $4 billion of the loans.
There was a further complication. IAG had sold its stake in TBCC in 2019 to giant Japanese insurer Tokio Marine. So why on earth was the coverage it was providing to the Credit Suisse–Greensill funds growing? When I called the Australian company, a spokesperson there said that the business was all ‘run off’ – existing business from before the sale of TBCC. All the existing run-off arrangements would expire by June 2020, he said. That seemed to make sense at the time, especially if the coverage was matched to short-term supply chain finance loans. So it made a lot less sense that IAG’s coverage was growing.
Again, I was struck by the ticking time-bomb in the Credit Suisse funds – if TBCC could no longer provide insurance coverage to the Credit Suisse funds on the scale it had done previously, then the funds would quickly lose a key layer of protection. That would make them off-limits for a whole bunch of investors, who would have to be paid back, fast.
I went back to Credit Suisse several times to ask about the new rule – the 20 per cent cap. How come the proportion of coverage provided by IAG had grown to 51 per cent when I had been told there was a new rule in the works specifically to curb that kind of outcome? What they told me was shocking. I found out that the Credit Suisse–Greensill portfolio manager, Lukas Haas, and one of his bosses, Luc Mathys, had simply decided not to implement their own 20 per cent cap rule. They had told their colleagues that it wouldn’t be hard to find more trade credit insurance if it was needed. So a key control they had proposed just didn’t happen. A few months later, the issue that the rule was supposed to address became critical to Greensill and to the Credit Suisse funds.
INSURANCE WAS CENTRAL to Greensill’s business model. Insurance premiums ate into Lex’s margins. But without it, many investors simply could not put money into the sort of assets Greensill was selling. With insurance in place, the investors cared less about the quality of the underlying credits or the complexity of the structures that Lex had set up. In a sense, their investment was a bet on trade credit insurance.
Lex had always known this. The withdrawal of insurance is what had destroyed Robert Cleland’s Transaction Risk Mitigation (TRM) business in the early 2000s. The Dragon Technology debacle – when AIG had abruptly stopped providing cover to Greensill – should have provided a harsh lesson too.
The board also knew that insurance had a critical role to play in the future of the company. At just about every board meeting through 2019 and 2020, someone asked the question: how are we doing on our capacity to get insurance? And just about every time they asked, Lex calmly reported that everything was fine. The company worked with a broad and growing pool of insurers. More insurers were coming on board all the time. There was no problem.
This was deeply misleading. No one ever meaningfully challenged it.
INSURANCE AUSTRALIA GROUP was born in 2000, evolving out of the insurance arm of Australia’s National Roads and Motorists’ Association, an automobile services group based in New South Wales. The company, whose shares are listed on the Australian Securities Exchange, has tried for years to diversify beyond its roots in NSW. It moved into new geographical markets around Asia. It signed up to joint ventures. It mulled mergers with bigger competitors. In 2015, Warren Buffett’s Berkshire Hathaway bought a small stake. But ever since it was first created, IAG struggled to shape a strong new identity and deliver consistently impressive results.
In 2016, IAG signed a partnership agreement with what was then a brand-new business, The Bond and Credit Company, to launch a new trade credit insurance product into the Australian market. TBCC was a tiny firm, with a dozen or so staff in a Sydney office. It made a couple of million dollars in revenue each year. And it was rapidly becoming critical to Lex Greensill’s burgeoning multibillion-dollar financing empire.
A single executive, Greg Brereton, was the main Greensill connection at TBCC, providing billions of dollars of trade credit insurance. Brereton was well liked, quiet, and lived a modest, suburban life focused on his family, cricket and rugby league. TBCC’s own website said Brereton’s strength was in relationship-building, though he also had a strong commercial sense too. He worked hard, but there was nothing out of the ordinary that would signal he held a pivotal role in the future of Greensill. They didn’t twig, even when former UK prime minister and Greensill employee David Cameron showed up in 2018 for a brief personal meeting with Brereton at TBCC’s Sydney office. The meeting puzzled other staff. It’s not every day a world leader pops by the TBCC office, next to a parking lot and a Subway sandwich shop. But though the ‘getting-to-know-you’ meeting – as Cameron later described it – was odd, no one saw it as a warning of what was to come. Neither did anyone switch on to the crucial role of TBCC when Brett Downes, Greensill’s chief risk officer, showed up with little notice to sniff around the firm.
In late 2019, I asked Lex why Greensill did so much business with IAG, a relatively small firm compared to the big global providers of trade credit insurance. Why are you getting so much insurance coverage from this one Australian company? Lex was usually serious and smart. His response at the time was a rare, flippant moment: ‘I am Australian, and proudly so!’
He also pointed out that IAG had recently exited their partnership with TBCC and that Tokio Marine, a giant Japanese insurer, had stepped into its place.
That shift in ownership was far from the positive development Lex was trying to portray it as. It wasn’t the beginning of a much healthier insurance situation at Greensill at all. It was the beginning of the end.
Downes, the chief risk officer, had raised the problem of TBCC in late 2019. Brereton was certainly easy to deal with. He agreed to GFG deals that Greensill could not insure anywhere else within minutes of being asked by Lex’s staff. But that speed was not necessarily seen as a sign of a healthy, robust process. A report from Downes’s team, circulated among senior management, said ‘there is an increasing reliance upon a single relationship for insurance which leads to the emergence of associated risks.’ At that point, 72 per cent of Greensill’s insurance was with TBCC. Its next biggest insurance provider was Euler Hermes, at 16 per cent, and they were cutting back.
Even as Lex was telling his board – and nosy journalists – that everything was rosy, TBCC’s new owners were themselves becoming increasingly nervous about the policies Greg Brereton had signed them up to. And Lex knew it.
In July 2020, Mark Callahan, a veteran Tokio Marine executive based in Houston, Texas, launched a worrying missive. Callahan called his counterpart at Greensill’s insurance broker, Marsh McLennan. When he hit voicemail, Callahan followed up with an alarming email: ‘Note that all existing limits on Greensill buyers have been set to nil in our policy system. No extensions will be provided to any existing policy.’
Not only would Tokio Marine not be writing any new insurance for Greensill, nor extending any existing policies, but the company had also already curtailed Brereton’s capacity to write insurance policies a month earlier.
Marsh had been a loyal supporter of Greensill’s for years. Julian Macey-Dare, a Marsh managing director, was an experienced broker who had frequently supported Lex’s quest for a big insurance backer. He had helped Lex when he tried to get IAG back on board. He’d personally worked on Greensill’s business with TBCC.
In an email to Toby Guy, who was effectively CEO of TBCC, Macey-Dare questioned whether Tokio Marine could really pull the plug. ‘We welcome your strong commitment to support Greensill Capital as your largest customer, as well as valuing support for Marsh as your largest broker,’ he wrote. ‘We recommend you engage with us and our Insured [Greensill] as soon as you have a full understanding of your Insured portfolio.’
The following month, the unfolding disaster was laid out for Lex in full in another email from Guy. The message also went to Greensill Bank, which technically paid the premiums on the Greensill policies.
Brereton had been fired.
TBCC had launched a full-blown investigation into ‘dealings between Greensill Capital and Greg Brereton’. The investigation had already found he had exceeded his ‘delegated authority’ – he had written more than A$10 billion in insurance to cover Greensill’s loans in the previous twelve months, well above his personal limits. The investigation had also found that Greensill failed to submit signed paperwork and other documents including monthly status reports concerning the insured transactions.
A high-stakes legalistic back-and-forth was now zipping between Greensill, Marsh, TBCC and Tokio Marine. Mostly, the insurer was insisting that Greensill and Marsh had failed to provide all the right documents they were supposed to send to TBCC, and that TBCC was not providing insurance cover beyond Brereton’s limits. Lex and his broker claimed they had sent everything and that they expected the insurer to honour commitments Brereton had made on their behalf.
What’s striking is that even if Greensill had successfully argued his points (that Brereton was TBCC’s problem, and that the existing policies he’d written should be left in place), the relationship between Greensill and its biggest single insurer, by far, was burning to the ground. It was typical of Lex, a constant blind spot, that he didn’t seem to realize that winning another short-term victory would have just stacked up a bigger problem further down the line.
On 1 September, TBCC’s Guy sent another message. TBCC is still working on its investigation into Brereton’s previous dealings with Greensill, he wrote. TBCC would tell Greensill the outcome of their investigation in due course. In the meantime, Guy wrote, Greensill should consider his message as notice that the insurer won’t renew any policies when they end on 1 March 2021.
The clock was ticking down. And all the time, Lex was telling his board and anyone else who asked that there were no issues with Greensill’s access to insurance coverage.
OF COURSE, THE problem was abundantly clear from a cursory glance through the monthly updates that Credit Suisse published on its own funds. I had brought up the risk of this concentration with Credit Suisse several times, months earlier. The bank had even come up with a rule that would mitigate against the danger of having all the insurance eggs in one basket. But then they decided not to implement it.
As the TBCC problem escalated, there were few alternative places for Greensill – and Marsh – to turn to. My Wall Street Journal colleague Julie Steinberg and I had heard that Greensill was struggling to get trade credit insurance from a broader pool, despite what Lex and Credit Suisse said in public.
We already knew giant US insurer AIG had stopped working with Greensill after 2017. The trade credit insurance industry was a relatively small community, with executives swapping firms regularly. That meant Greensill’s reputation for aggressive risk-taking and lending to companies with weak credit ratings had got around.
Another major trade credit insurer had also now stopped doing business with Greensill. Euler Hermes is a giant of the trade credit insurance industry. Its name on Greensill investments had been a big marker of credibility. In negotiations over renewing Greensill policies, Euler had said it wanted to raise the excess – this would have the effect of reducing the amount Greensill would recover in the event of a claim. The move came after Greensill made a claim earlier in the year related to the failed company, NMC Health. It was like when a car insurer increases your deductible after an accident.
When we went to Greensill with this story, Lex and Doran tried to play it down. We wrote: ‘Greensill . . . rejected the terms and opted to replace Euler with other insurers, a Greensill spokesperson said, declining to name them.’
In November, Greensill had arranged additional insurance coverage, of about $3 billion, through Chubb, a Swiss insurance company. Lex later acknowledged that the Chubb policies were never used because they required Greensill Bank to pay a first loss deductible. The policies would only work if Greensill could provide a significant cash collateral to cover the potential deductible. But Greensill didn’t have that kind of cash. Lex was running out of insurers and running out of time.