Greensill Bank Wind-Down Nears With Watchdog’s Deposit Decision

Germany’s financial regulator is nearing a decision to wind down Greensill Bank AG after its parent company filed for insolvency, opening the door for most depositors to get reimbursed.

BaFin could determine as soon as this week that the bank cannot shoulder its debts, according to people familiar with the matter. Such a decision would trigger payments from an industry-backed fund to compensate depositors, said the people, asking to remain anonymous as the matter is private.

Bremen-based Greensill Bank has about 3 billion euros ($3.6 billion) of insured deposits and an additional 500 million euros which aren’t covered. The latter include funds placed in the bank by German municipalities, which stand to be wiped out, said the people.

BaFin declined to comment.

BaFin froze payments in and out of Greensill Bank last week after a probe by the regulator found irregularities in how the lender booked assets tied to a key client of Greensill Capital, British industrialist Sanjeev Gupta. The regulator had been increasing scrutiny of the bank since the middle of last year, but the rapid unraveling of financier Lex Greensill’s empire this month is now leaving some of the depositors at risk.

Greensill Capital, which provided trade finance to companies and suppliers and then sold off those loans to investment funds, collapsed after a unit of insurer Tokio Marine Holdings Inc. refused to provide coverage on new notes. Without the insurance, the value of the assets became uncertain, prompting Credit Suisse Group AG to freeze $10 billion of funds it ran together with Greensill.

Greensill Bank provided funding to its parent and assumed some of its credit risk. It had attracted deposits by paying above-market rates, luring a number of municipalities to park their cash there. But because municipalities aren’t protected under a deposit insurance program run by German banks, their investment is now at stake.

The voluntary deposit insurance program, which counts Greensill Bank as a member, doesn’t expect to recoup more than several hundred million euros from the lender and could end up paying out as much as 3 billion euros, one person said. The final amount will depend on how many of the notes on its books are covered by Tokio Marine, said the person.

An official for the deposit insurance fund declined to comment.

A wind-down of Greensill Bank could also force other lenders such as Deutsche Bank AG and Commerzbank AG to pay more into the deposit insurance in order to replenish those funds.

©2021 Bloomberg L.P.

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