Greensill Sold Itself the Bulk of $15 Billion Future Receivables

Greensill Capital sold about $15 billion of controversial debt investments backed by future sales in 2020, mostly to its German banking subsidiary.

The insolvent trade finance firm sold more than $11 billion of the securities -- based on so-called future receivables -- to Greensill Bank AG unit last year, according to a letter from founder Lex Greensill sent to a committee of U.K. lawmakers.

Securities backed by account receivables usually rely on invoices, but future receivables are guaranteed on sales that have not yet occurred and, as a result, are a far riskier investment. Germany’s financial regulator shuttered the Bremen-based lender in March after finding irregularities in how it booked assets tied to a one of the firm’s biggest clients and user of future receivables, Sanjeev Gupta’s GFG Alliance.

In the letter to the U.K.’s Treasury select committee, Greensill said the nature of these future receivables was fully disclosed to investors, but also revealed they became a much bigger part of Greensill’s business in recent years. From a mere 2% of total assets processed by the company in 2018, they accounted for 11% last year.

The increase occurred as GFG was becoming increasingly reliant on this form of financing, according to court documents. The fall of Greensill Bank has cost Germany’s deposit insurance fund 3 billion euros ($3.6 billion) and depleted the coffers of many small municipalities that had parked their money at the Bremen-based lender, attracted by higher-than-average interest rates.

Other future receivables were shifted on to a suite of funds run by Credit Suisse Group AG, which marketed them as an alternative to low-risk money market funds. Credit Suisse has returned $4.8 billion from the funds so far, which held around $10 billion at the time of the firm’s collapse.

©2021 Bloomberg L.P.

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