By December 2020, the planned fundraising had come off the rails. Investment bankers from Credit Suisse had pitched the deal to some of their biggest clients, but no one was stumping up the cash.
Despite the crisis, Lex wasn’t showing any stress. He rarely did. Instead, he had the firm send every Greensill employee six bottles of champagne or a hamper from Fortnum & Mason for Christmas. It was a lavish gesture after a difficult twelve months and it cost Greensill about £300,000. Some of the firm’s top executives were incredulous. Given all the pressure they were under, the firm should have been conserving every penny. Jobs were at serious risk. Yet Lex was spending to impress, as though nothing was wrong.
A week before Christmas, Lex held his final board meeting for the year. Despite the pandemic, 2020 had been a stellar period for Greensill, he said. The firm had record revenues. Profits were up. The plan to go public one way or another next year was in train. Some of them wished Lex a happy birthday for the following week. ‘We’re crushing it,’ Lex told the board.
In the next day or two, he peppered the board with optimistic emails outlining all the successes. They could head off for the holidays in happy, festive spirits. Next year, they’d all be rich.
That might have been the last time anyone in the team really believed in Lex.
Greensill executives were scrambling for revenue, and increasingly concerned about the failed capital raise and the tough position taken by the German regulator. Hardly any of them knew that the biggest threat was the looming end to Greensill’s main insurance partnership.
Lex despatched Roland Hartley-Urquhart on a mission to West Virginia. He flew down with the aim of persuading Jim Justice, or one of his staff, to help Greensill out of its mess. There was plenty to talk about. Bluestone had refused to send more coal to GFG, and Justice was smarting over the previous shipment that hadn’t been paid for. From Greensill’s perspective, if Bluestone would pay off some of its debts, then Greensill could certainly use the cash right now. That would also help ease the pressure on Greensill’s insurance policies, which were maxed out. But the Justice family were hardly in generous holiday spirits. Hartley-Urquhart’s flight made no material difference to the state of Greensill’s perilous affairs.
A few days after Lex’s cheery holiday message to the board and senior management, his mood took a dark turn. Around Christmas Eve, Lex began delivering the grim truth. It wasn’t clear what specifically had caused him to change his tune. But now Lex was saying that BaFin, the German financial regulator, wanted to kill Greensill. They wouldn’t negotiate over the GFG problem. They might even seize the bank. As always, he seemed calm, despite the crisis. He’d figure a way out. SoftBank would put more money in, he told some of his board and senior executives.
Despite Lex’s assurances, many of the senior figures were now deeply concerned. They’d bought into the delusion for too long already. They knew about BaFin. The warnings they’d been given for over a year about the GFG exposure now suddenly came into sharp focus. There was no way out. Several board members and executives started to talk about leaving the sinking firm. At SoftBank, Misra decided that the Vision Fund should write its investment in Greensill down to zero. A couple of billion dollars, all told, was completely worthless.
By New Year’s Eve, it was clear that Greensill was in deep trouble. There was another emergency board meeting. Much of the world, including the UK, was back under tougher Covid-19 restrictions. The meeting was dial-in, and it was under the direction of administrators from Grant Thornton, appointed that very day by the board. Their role would be to help figure out a plan. Sell the business. Restructure it. Break it up. Declare it bankrupt. Nothing was off the table.
Lex was furious. Bringing in administrators was unnecessary, he thundered. Lex and the board could figure a way out of Greensill’s problems, he urged. But the board was not listening. Their patience had run out. The consensus view was that Lex’s battle with the German regulators had gone on long enough.
Some senior executives and board members were now worried, not just about the future of the company. They were also beginning to wonder if Greensill would be the source of a major financial scandal.
One loan caused particular concern. The Credit Suisse funds had loaned about $435 million to Katerra, a construction company part-owned by the SoftBank Vision Fund. The five-year-old company was based in Menlo Park, California, and claimed to be ‘transforming construction through innovation of process and technology.’ In fact, it was struggling to survive. Some projects were running well over budget, and its rapid expansion plans had stretched the company’s balance sheet to breaking point.
The Vision Fund had invested $2 billion into Katerra over the previous couple of years. Yet by autumn 2020, Katerra was close to filing for bankruptcy. On 30 December, my colleagues at The Wall Street Journal reported that Katerra had received another $200 million SoftBank bailout to stave off insolvency. The company’s CEO also told the Journal that as part of the bailout deal, Greensill had forgiven a loan to Katerra in exchange for a 5 per cent stake in the construction business. It was a strange arrangement. At Greensill, Lex made a cursory reference to the transaction on a regular all-staff Monday-morning video conference call.
The deal troubled Greensill’s senior team. Some of them knew that SoftBank had transferred about $440 million to Greensill to cover the Katerra loan. The money was supposed to be paid to the Credit Suisse funds. The problem was that months after receiving the payment, Greensill was still sitting on the money. It hadn’t been paid into the Credit Suisse funds. Some senior executives were deeply worried – the money wasn’t Greensill’s. It belonged to Credit Suisse’s clients.
A little while later, a spokesperson at Greensill’s external public relations agency told me that Greensill took something called ‘flash title’ on the 5 per cent stake in Katerra which was ‘passed through’ to an insurance provider. He said the amount involved was closer to $100 million rather than $435 million. And he also said that no investor had lost any money as a result of the transaction. Pretty much all of this turned out to be inaccurate. Later, a report from Greensill’s administrators said Greensill had taken the money from SoftBank and put it in Greensill Bank. When everything blew up in March, Credit Suisse was still showing the Katerra loan outstanding. SoftBank and Katerra believed the loan had been paid off, while Greensill insisted the money was stuck in the German bank and it couldn’t get to it. Months later, after Greensill fell apart, the same Katerra payment became the focus of a protracted public falling out between Credit Suisse and Softbank that played out in a US court.
LEX WAS FACED with a billion-dollar game of whack-a-mole. Deal with one existential threat and another popped up. Deal with that one, and the first came back again to threaten Greensill Capital with insolvency. It was hopeless. But Lex was not going to throw in the towel. Faced with terrible odds in the past, he had somehow managed to survive.
Early in the new year, BaFin was the biggest, most immediate crisis. If he could get the German regulator to cut him some slack or at least give him more time, then Greensill could use that space to potentially secure another financial lifeline, and Lex could turn his attention to another blazing fire.
Whatever else might be going wrong, Lex remained a firm believer in his own negotiating skills. So long as the regulator was still talking, then it was always a negotiation.
In early January 2021, the plan was for Lex, Sanjeev Gupta and Rajeev Misra to fly to Frankfurt, Germany’s financial centre, on the Greensill jet. They would meet with the German regulators in person. And the three arch-dealmakers would score some kind of victory.
That was not what happened. Europe was still mired in the Covid-19 pandemic, and travel – even elite business travel on a private jet – was severely restricted. Germany was a no-go. The three executives couldn’t fly, and the meeting had to be held online. If they were going to make a big impression, it would have to be on Zoom.
The day of the call came round. Misra showed up late, as he often did. The four BaFin regulators on the call were not in a generous mood. Lex had lost a lot of goodwill. He never seemed to have been fully transparent about Greensill Bank’s overall exposure to Gupta. The regulators had been pushing for Greensill to unravel its own mess for well over a year and were unimpressed by his ongoing pleas for a compromise. They were not going to ease up.
Lex would either have to get the GFG loans out of the bank or put more capital into it. One of the regulators asked about an email Lex had sent them. It had said that SoftBank was ready to invest a billion dollars more into Greensill. When was that going to happen? Attention shifted to Misra, dialling in from Dubai. The Vision Fund chief was blunt and direct. I don’t know what you’re talking about, he told them. The size of this Gupta problem is news to me. And as for plans to invest more into Greensill: no way. Not a single dollar.
The call went quiet. Lex was ashen. He appeared to have been caught providing the regulator with misleading information.
Eventually, Gupta broke the silence. Look, if we can’t resolve this, then you’re going to be putting thousands of people out of work, he said. That’s a terrible outcome and it will be because of your actions. Lex joined in. If BaFin continues on this course, then jobs and businesses will fail, Greensill added. Greensill loans were funding the NHS and some major global businesses. Some of them are in Europe. If BaFin doesn’t give Greensill breathing space, the results will be very painful for all our clients.
The four German regulators were unmoved. None of this was their concern. It wasn’t their job to protect steel industry jobs. Their role was to safeguard the German banking sector. Nothing more. And Greensill Bank was too big a risk. The regulators said Greensill Bank must reduce the exposure to Gupta loans to zero. And it should do it now.
After the call, the dire reality of Greensill’s circumstances could not be hidden from most of the senior team any longer, but not because Lex wanted to be more transparent. The management team knew what the situation was because they had heard it for themselves. The call had included a conference line set up by Greensill’s external law firm. Several of Greensill’s top executives knew about it and had dialled in. They had been eavesdropping on the whole thing. Lex’s humiliation in front of BaFin had been played out before an audience. The scale of the calamity unfolding at Greensill Bank was clear for all of them to see.