In those last few weeks and months, Lex discussed a series of increasingly far-fetched rescue plans.
In one scenario, he would engineer the acquisition of Wyelands Bank from Sanjeev Gupta. Wyelands had grown rapidly, in part by offering high interest rates on deposit accounts that lured in customers who were getting next to nothing if they put their money in a traditional bank account. By 2019, Wyelands had signed up around 15,000 savers and held more than £700 million in deposits. The bank had issued loans of about £400 million too. But something was not right. UK financial regulators were crawling all over Wyelands because of their concerns that it was lending too much to other entities related to Sanjeev Gupta’s business empire.
Wyelands was under pressure to wind down the amount it was lending to other GFG businesses. But Lex had another idea: what if Gupta sold him Wyelands Bank for a nominal fee of £1? If Greensill owned Wyelands, then the GFG businesses would no longer be related to the bank. And if that was the case, then the loans to GFG would no longer be a problem for the regulator. What’s more, Greensill could shift some of his own GFG loans into Wyelands too, from the German bank or from the Credit Suisse funds.
Lex’s senior executives weren’t buying it. There was no way the regulator would approve such a scheme. Besides, with so much bad press swirling around Greensill and GFG, it made no sense to add yet one more entanglement. For once, strong opposition inside Lex’s inner circle won out.
Another Hail Mary left senior executives equally incredulous. Greensill had security over lots of the GFG assets as a kind of protection for the loans to Gupta. If Greensill foreclosed on the loans, GFG would collapse, but Lex would own it. He would be top of the list of creditors. Lex could claim on the existing insurance policies to cover the defaults. And he would inherit a global steel empire with no debts. Greensill would be reinvented as a sort of financing and metals conglomerate. Lex could even offer Sanjeev a small stake in the new super-Greensill to sweeten the deal. It was a nuclear option. Explode the whole thing, and hope we survive. Lex’s team were dumbfounded. There was so much that could go wrong. Again, the sceptics won another one.
EARLY IN 2021, Lex was still clinging to the hope that there would be a further capital injection into the business from an outside investor. He was on yet another Zoom call with the management team. First, he checked the phone lines to see who was listening in, and then stressed that the conversation was private and should not be discussed outside the meeting. He seemed paranoid and even more focused than usual. Among sections of the senior management regime, there was a feeling that Lex’s briefings were becoming less and less accurate, and wilder in aspiration.
‘I want to provide some context as to why our capital raise didn’t close in December,’ he said. Then he added: ‘The message to team members who ask is that we expect it to close in January.’
There had been a potential investor: TDR Capital, a $14.5 billion private equity fund, based in Marylebone, London, which manages money for pension funds, sovereign wealth funds, and others, in North America, the UK and around the world. The twenty-year-old firm had stakes in Pizza Express and Asda. An investment from TDR would not only have introduced new equity into Greensill, it would also have added some much-needed credibility. Lex was hoping, too, that SoftBank would match the new investment.
However, TDR had drawn back. Lex explained that ‘an inbound’ from BaFin had landed in December, questioning the company’s ‘GFG reduction plans’.
‘It’s not actually a legal obligation on our company yet, although it will become one over the course of the next few weeks, we’re going to need to reduce the net GFG position in our bank over the course of the next twelve months to zero.’ The communication from the German regulator was particularly unhelpful, created uncertainty around Greensill’s GFG plans, and, when it was disclosed to the potential new investor, caused them to pause, he said.
‘Not surprisingly, they said, you know, why don’t you get it all sorted out before we close,’ Lex told the meeting. ‘People who write out equity cheques don’t want to do so with uncertainty around us.’
In fact, TDR had already told Lex that they would not back any Gupta loans. They only wanted the safest loans. They had also called other Greensill investors, who had openly told them of their own concerns about the direction the company was headed.
Lex continued by telling the team that he was working on a multibillion-dollar liquidity line ‘into which we can deliver GFG assets.’ The deal would close in a matter of weeks, and SoftBank and others would back it, he said.
This involved a more than $2 billion ‘term finance facility’, which Lex said was arranged by Cantor Fitzgerald, the seventy-five-year-old New York investment bank and brokerage. Lex told management he was personally arranging the funding with Cantor’s CEO. That was Howard Lutnick, the hard-edged finance veteran who had gained global notoriety and respect when he rebuilt Cantor after the 11 September 2001 terror attacks, which had claimed the lives of 658 of the company’s employees.
There was another useful connection there. The president of Cantor was Anshu Jain, a veteran banker and former co-CEO of Deutsche Bank, the much-maligned German bank where he had once been the boss of SoftBank’s Rajeev Misra and several other SoftBank Vision Fund executives.
This would be a completely private arrangement. There would be no press coverage, Lex insisted, ‘unless you guys leak it.’ The message was clear – keep this to yourselves. Lex had become deeply hostile to any outside scrutiny.
The idea was that Cantor would set up a new vehicle – a kind of ‘bad bank’. Greensill and Cantor would find investors to put their money in, and the ‘bad bank’ would then buy loans related to Sanjeev Gupta’s GFG group of companies out of Greensill Bank. Potentially Greensill could dump some of the other problem loans there too. Investors would be fine with it because they would know what they were buying, and price it accordingly at a discount, and because the loans would be protected by trade credit insurance, which would pay out if they defaulted. If everything went as planned, the investors would get a decent return.
Cantor was a credible name for Greensill to work with. It had expertise and experience in dealing with complex, difficult situations. If Lex could pull it off, Greensill could shift the bad loans off its books and restart as a business focused on the higher-quality corporate clients, like Boeing or Vodafone. He could leave all the problems behind. There was one major hurdle: the vehicle, Lex was told, would need three years of trade credit insurance before any investors would buy in. The whole thing would only work if he could get trade credit insurance. Lex didn’t admit it, but that made the plan just about impossible.
On the call with Greensill’s senior executives, he outlined the next stage of the plan. Both General Atlantic and SoftBank had advocated that Greensill should become a public company much more quickly than previously anticipated, he said. Instead of waiting for an initial public offering (IPO), the firm would tap one of the hottest trends in finance at that time. Greensill, Lex told the team, would go public through a special purpose acquisition company, or SPAC.
Special purpose acquisition companies had been around for a while, but their popularity soared in 2020 and reached fever pitch in early 2021. By some measures, SPACs had raised about $64 billion in the US in 2020, almost the same amount as companies that listed their shares in the traditional way. Typically, SPACs are shell companies that receive a bunch of cash from big investors. They’re sometimes called ‘blank cheque companies’, because the investors essentially write a big cheque that the SPAC then uses to go out and buy another, undervalued business. Because the SPAC’s shares are listed, the companies they acquire effectively become listed too. It’s a much quicker path to public company status than the IPO process. It doesn’t involve the usual hurdles, such as investor roadshows and months-long preparation of IPO documentation. That appeals to company owners, but it has caused a lot of consternation among some investors and regulators, who say the fast-track process is less rigorous and more prone to cutting corners than a traditional listing. The SPAC plan essentially meant switching from a two-year IPO process to a four-month timetable.
‘The probability of that has gone up materially in the last week or so,’ Lex said. ‘Clearly with the GFG concentration dealt with, we have a very good equity story to tell to the market.’
Of course, the GFG concentration issue hadn’t been dealt with at all. Still, Lex told the team that a specific SPAC had already expressed an interest. He outlined several positives. For starters, some private companies that had gone public through a SPAC had achieved valuations of more than $10 billion, he said. The implication was that Greensill would get a higher valuation too, although there wasn’t much to back that up. The deal would also result in $2–3 billion of additional equity capital, he said.
Greensill would also have ‘public company currency’ – meaning its shares, which would be listed on the US Nasdaq exchange, could be traded. Staff and board members who still held a lot of stock could sell it more easily.
Finally, Greensill would inherit the SPAC’s auditors, meaning that Greensill’s failed quest for an auditor of its own would be resolved too.
Some of the senior managers worried that Greensill was nowhere near ready for it. The company didn’t have the right governance or systems in place to be a listed company. It was still running an aggressive plan to double revenue every year, even though that had proved impossible. As a public company, it would have to be on a much more disciplined, sustainable footing. It would need to be able to produce the quarterly accounts and dozens of reports that were required of companies whose shares were listed in the US.
The senior management group’s belief in Lex’s vision was stretched to breaking point. Many of them knew that it was incredibly unlikely SoftBank and GA were looking to invest more. They knew that Lex’s relationship with his two main outside investors was strained. And they knew that both the Cantor ‘bad bank’ plan and the SPAC were wildly ambitious, given that Greensill Capital and Greensill Bank were under intense scrutiny from regulators.
Lex continued. He stressed a new focus on costs. Spending had to be much more measured. Hiring and bonuses – both of which had been running at a clip – were suddenly paused. A year earlier, the company had had 414 employees. That number had now risen to 1,001.
It was a major gear shift, and seemed like Lex was finally coming to understand the dire reality. Then he added the most chilling message of the meeting. There was the potential, Lex said, that Greensill could run into a ‘liquidity crisis’ as it dealt with BaFin. Everyone knew what this meant. They could run out of money. If that happened, Lex told the team, it would result in a threat to the company’s solvency. It was a stark admission.
‘I’ve just given you full transparency,’ he told the team, before clarifying that none of the discussion should leave that meeting. If what he was saying got out, then investors and clients would run from Greensill with great haste, spelling the end of his company. ‘Transparency in the marketplace is terminal,’ he warned.
IN LATE JANUARY 2021, Storm Christoph swept across the Atlantic Ocean and Ireland and bucketed rain in north Wales and the northwest of England. Rivers rose and swathes of the country were under water. There was also snow now blanketing parts of the region. The country was deep into another Covid-19 lockdown. Events in the US were tense following riots at the Capitol Building ahead of the inauguration of incoming president, Joe Biden.
At this point, there were management or board meetings at Greensill every few days. At one Zoom meeting of Greensill Capital’s top executives, discussion turned to whether the company’s 1,000 or so employees – mostly based in the northwest of England – were caught up in the floods or the snow, or whether they should send a message of reassurance to staff in the US who might be concerned about the political situation there. It was mundane stuff for a company in crisis.
Lex had more urgent matters to deal with. He moved the meeting quickly on to two key issues. There had been huge progress, he insisted, on both. The company now looked like getting access to more critical trade credit insurance, and he had a major financing rescue plan in place.
‘There’s still some wood to chop to get everything wrapped up,’ he told the core management team. ‘But in the meantime, it’s obviously important that [you] keep the troops pointed dead ahead, focused on closing the deals.’
The bailout plan Lex said he was working on sounded thorough. First there was the emergency liquidity plan – the Cantor plan – to bring in much-needed cash to the business. The transaction was planned to close in March, Lex said. That was two months later than Greensill had previously hoped. Timing on all of this was becoming critical. Lex said the legal team at Greensill had worked for days and through the weekend with Tokio Marine and IAG to make this a reality. He said that initial feedback from investors was that they would be interested so long as the insurance was in place. SoftBank would put $1 billion into the facility, Lex had told the management team. He didn’t elaborate on who else would put money in. But he said he was also talking to SoftBank and others about potentially selling some of the GFG assets earlier.
If Greensill could pull it off, the move would get the GFG exposure out of the German bank. And that would get the German financial regulator BaFin off Lex’s back. It was only one of several major problems Lex was dealing with. But if he could put out one fire, even for a short time, he could move on to deal with the next one.
THROUGHOUT JANUARY AND February, there were board meetings every two or three days. Lex gave serious updates on BaFin, though he said it was all under control. He talked about his search for new sources of funding. He said that he was hopeful that Misra would put more Vision Fund money in. He said that if SoftBank stumped up some cash, others would follow. But SoftBank’s representatives weren’t always showing up to board meetings to answer those questions for themselves. It hardly gave the impression of an investor ready to ride to the rescue.
Greensill began talks with a giant US private equity fund, Apollo Global Management. The thirty-year-old company has almost $500 billion in assets under management. It is a New York-based giant of the industry, one of the biggest so-called ‘vulture funds’ – a reference to the way these firms pick through the bones of distressed companies, stripping them of their useful assets. Apollo was only interested in the non-GFG business, the good loans, and was looking to pay less than $100 million for the lot.
Lex was also working on a plan to deal with the onrushing insurance calamity. Greensill Capital had several insurance policies representing about $10 billion of cover with TBCC, owned by Tokio Marine. The most important was the Standalone Policy, which had a limit of $4 billion. Tokio Marine had told Lex it wouldn’t renew the policy when it expired at midday on 1 March. Without this, the Credit Suisse funds could not function and Greensill would be finished.
Lex’s position was always that everything can be negotiated. For months, he had been acting as though TBCC, Tokio Marine and IAG would buckle and agree to an extension. The insurers were not showing much indication that they were willing to help. Lex believed that if he could come up with $1.25 billion in cash collateral, then there would be a way to get the insurance extended. But where would he get that kind of money?
As the end date closed in, he tried another approach. In February, Greensill filed a lawsuit in Australia to try to force the insurers to continue coverage. Greensill disputed that Tokio Marine had provided the required 180 days’ notice of non-renewal. Greensill appealed to the court on the grounds that the outcome of non-renewal would be ‘catastrophic’.
‘If the policies are not renewed, Greensill Bank will be unable to provide further funding for working capital of Greensill’s clients . . . In the absence of that funding, some of Greensill’s clients are likely to become insolvent . . . That in turn may trigger further adverse consequences on third parties, including the employees of Greensill’s clients. Greensill estimates that over 50,000 jobs including over 7,000 in Australia may be at risk.’
It was the same argument Lex had used with BaFin. And it had the same level of success.
The Australian court rejected Greensill’s argument. There were no grounds to force the insurers to renew the policies, which could have serious implications for their businesses too. The court also made a further compelling point. Despite the fact Lex knew about the insurers’ position eight months earlier, Greensill only sought legal advice in late February, days before the policies were due to expire. Lex’s lawsuit looked like a last-ditch attempt. It looked like another Hail Mary. And it failed.
Although Greensill teetered on the brink throughout January and February, Lex had continued to cheer the company’s long-term prospects. In interviews with Australian media and with Bloomberg News in early 2021, he reiterated the public aim of an IPO, even speculating that he might list the company’s shares in his home country. To many of the Greensill executives, as well as to me and to others paying close attention to the company, these stories appeared to be astonishing hubris or wilful blindness to the company’s predicament.
Most of the employees of the company had no idea of the utterly dire straits that Greensill now found itself in. But some senior executives had begun to see the writing on the wall and were already leaving the company, while others were actively looking to desert what they saw as a sinking ship.
In the first two weeks of February, Hanafin, Garrod, Crothers and several others were all taken off the board of Greensill Capital, the main UK operating company within the Greensill group. As other senior figures departed, Lex remained stoic. But each departure deepened the sense of crisis.
At the Daresbury offices in northwest England, staff continued to toil away, with little knowledge of Greensill’s predicament. For many of them, Greensill continued to be a good employer with strong growth prospects. That myth was about to be blown out of the water.
IN LATE FEBRUARY 2021, Julie and I heard that Greensill was likely finished. We heard that Credit Suisse was considering pulling the plug on its Greensill funds or replacing Greensill as the source of supply chain finance assets the funds bought. Credit Suisse was also trying to figure out what to do with all the GFG loans sitting in the funds.
It was an explosive story. If we published, it would open the doors on Greensill’s dire position. The company would not be able to contain the fallout. All weekend, we called our sources, carefully trying to confirm what we had heard without becoming the source of a self-fulfilling rumour. We called Doran for comment, though he wasn’t in the mood to chat.
Finally, late on the evening of Sunday 28 February, after consulting with editors and our lawyers at the Journal, we pulled the trigger on the story.
The next day, Greensill began to unravel quickly. The insurance policies were not renewed. Credit Suisse suspended the funds to prevent a run – it was like GAM all over again, but this time on steroids. The bank sent a note to investors, saying that assets in the fund are ‘currently subject to considerable uncertainties with respect to their valuation.’
In the following days, chaos ensued. More board members left the firm. Apollo pulled out of the deal to buy Greensill’s better loans. The Swiss financial regulator called in Credit Suisse to ask what on earth was going on. In Germany, BaFin seized control of Greensill Bank and referred matters related to Greensill Bank to criminal prosecutors.
On Monday 8 March 2021, Greensill filed for insolvency protection. Lex began calling round his board and investors. He spoke to Gabe Caillaux at General Atlantic. Lex, typically so cool under extreme pressure, sounded broken. His voice was cracking. ‘Gabriel, it’s over. I’m very embarrassed about what I’ve done. I’m ashamed for what I’ve done to my family name.’