The Simple Problem That Sank Greensill’s Complex Financial Empire

By Lucca De Paoli and David Rocks

Every company has a genesis story, a tale to give customers and investors something simple to latch onto, even when the business is new or hard to understand. Tech pioneer Hewlett-Packard was started by a couple of electronics tinkerers in a garage. EBay, on its way to introducing the idea of online auctions, had a (made-up) yarn about someone looking for a better way to collect Pez dispensers. Theranos peddled its (allegedly made-up) finger-prick blood test technology with a story about founder Elizabeth Holmes being afraid of needles as a child.

Greensill Capital had the melon farm. Lex Greensill, founder and chief executive officer of the London-based lender that proclaimed it was “making finance fairer,” loved regaling anyone within earshot about his parents scratching out a living in the flatlands around Bundaberg, Australia. A good harvest of melons and sugar cane meant fat times, but a dry year could wreak havoc. Just as stressful were the monthslong delays in payments from customers, leaving the family short of cash. In Greensill’s telling, his company had come up with a way to help small businesspeople like his parents get their money faster.

Greensill offered a version of something called supply chain finance, an arcane corner of banking in which a middleman pays a supplier immediately, but at a discount, and then collects the full amount from the buyer a few months later. Greensill Capital’s technology, the company said, could assess the risk of loans with the help of artificial intelligence. Rather than making all these loans with its own cash, Greensill Capital often sold the IOUs it arranged to outside investors, who saw them as a way to earn better-than-average returns with virtually no risk. After all, the loans were based on sales that had already happened—Greensill was merely working out a kink in the cash flow.

The melon anecdote made tangible why a company such as Greensill’s might be needed and how it could make everyone a winner. It helped make his company seem to be a forward-thinking, problem-solving fintech startup—just the sort to draw a big investment from Masayoshi Son’s SoftBank Group Corp. And it was much easier to explain than what Greensill’s business actually became: a complex web of risky debts and investments. For a time this financial empire was considered so valuable that Lex Greensill was ranked among the world’s billionaires. “Greensill’s investors were buying the story,” says Stephen Clapham, a forensic accountant in London. “Lex Greensill was a fantastic salesperson.”

In March, Greensill Capital collapsed into insolvency, and administrators are trying to untangle the company’s dealings and return money to creditors. It turns out that Greensill Capital was arranging more than short-term loans to help speed up payments. It did conduct such business, but much of its debt was backed by predictions of future sales rather than invoices. It had also made big bets on companies in shaky industries, and its vaunted risk-assessment technology, former staff members say, was nothing special. Worse, Greensill Capital’s riskier loans were funded, in part, by investors and even bank depositors seeking a safe place to stash their money.

When everything fell apart, it became the U.K.’s biggest financial scandal in more than a decade. The 44-year-old Aussie had cultivated ties with the likes of former Prime Minister David Cameron and was even made a Commander of the Most Excellent Order of the British Empire, receiving the award from Prince Charles in 2018. By May, during a three-hour committee hearing in Parliament, one lawmaker read him the dictionary definition of fraud and asked, “Are you a fraudster?” Greensill’s response: “I am not.”

Greensill is adamant that the loans his company arranged were aboveboard and backed by a combination of assets, guarantees, and insurance. What’s clear is that in the midst of the pandemic, the company was struck by a fatal crisis of confidence. German regulators were raising questions about whether a bank owned by Greensill Capital in Bremen, Germany, had too much money tied up with Sanjeev Gupta, a British-Indian steel entrepreneur. Then the insurer providing protection against defaults on loans Greensill Capital arranged decided not to renew its coverage, effectively yanking away an important safety net for investors in its notes. And Credit Suisse Group AG, which ran funds full of those Greensill notes, decided it was so uncertain of their value that it had to freeze all four of the portfolios, making it impossible for clients to immediately get their money out.

The Swiss banking giant has warned investors that they may suffer losses as it works to recover the debts, but at this point it’s unclear how big the hit will be. (It says $5.9 billion of the funds, which were worth about $10 billion when they closed, has been returned to date.) Sorting out exactly what happened at Greensill Capital—and who will pay for it—is likely to take years.

Jay Justice is as close to royalty as you’ll find in West Virginia. His grandfather founded a company that became a bedrock of the state’s coal mining industry, and his father, Jim Justice, spun that business into a billion-dollar fortune and is now governor of the state. So the younger Justice—his full name is James C. Justice III—was probably unaccustomed to the kind of pressure he got from his lender last winter.

Justice is the CEO of the coal miner Bluestone Resources. It was not Greensill Capital’s most important client—that would be Gupta and his company, GFG Alliance. But Bluestone was a big borrower, and a lawsuit it filed against the company in federal court in New York is the most detailed account of how Greensill Capital’s most problematic lending allegedly operated.

The Justice family had purchased Bluestone from a Russian oligarch who had “failed to make even the most basic required investments in mine operations,” according to the lawsuit. All told, the company would eventually borrow about $850 million through Greensill Capital.

Jay Justice typically spoke several times a week with Roland Hartley-Urquhart, a vice chairman at Greensill. In January the calls became increasingly frantic, with Hartley-Urquhart, an American investment banking veteran, seeking to change the terms of deals Justice thought had been settled, according to Bluestone’s complaint. He was demanding accelerated repayment of hundreds of millions of dollars in credit, and in early February, Hartley-Urquhart rang Justice with an off-putting request: Could Justice wire—immediately—a substantial sum to Credit Suisse?

Until then, according to the court filings, Justice knew nothing of any relationship between Greensill Capital and the Swiss bank. Hartley-Urquhart, who resigned from Greensill Capital, declined to comment on the lawsuit. A spokesman for Lex Greensill says the firm never asked Bluestone to send money to Credit Suisse.

But there was a link between Bluestone’s debts and Credit Suisse: After lending to Bluestone, Greensill Capital packaged that debt into notes that were then bought by Credit Suisse funds. In documents for investors, Credit Suisse touted these funds as some of the lowest-risk investments it offered. They attracted money from investors looking for alternatives to money market funds earning next to nothing in interest.

Early on, Greensill Capital had focused on basic supply chain finance. But an additional offering—called future accounts receivables financing—accounted for the bulk of its business with the likes of Bluestone and generated outsize profits. Greensill Capital said its tech could calculate a company’s future sales and lend against them. In essence, Greensill Capital was guessing how good business would be in the future: Rather than being based on a sale that had happened, the loans were based on sales deemed likely to occur.

It’s similar to the difference between a mortgage and a construction loan: In the former, the bank can in theory seize the house if the borrower defaults, but the latter holds a risk that the home will never be built. “They were convincing investors that here was a secure asset,” says Richard Bruce, a lecturer in supply chain accounting and finance at the University of Sheffield. “What Greensill did was push the boundaries way beyond what was reasonable.”

A spokesman for Lex Greensill says that his company required collateral such as buildings or equipment and personal guarantees from management when debtors took out loans based on future receivables and that it had insurance to cover any eventual defaults. Following a Wall Street Journal report that the governor’s family had signed personal guarantees with Greensill, Bluestone amended its lawsuit in June to acknowledge what the Justices had at stake.

Greensill also says the company clearly documented its business and that its customers were sophisticated institutional investors who knew what they were getting into. “Every asset that we ever sold was correctly described, and that information was prepared and made available to our investors, to our auditors, and to our regulators,” Lex Greensill told British lawmakers.

Bluestone borrowed $70 million from Greensill Capital based on invoices, but it also took out $780 million in credit for sales that hadn’t yet been made. Greensill himself made a trip to West Virginia in 2019 to work out the arrangement, the suit says, and Jay Justice traveled to Hartley-Urquhart’s home on Long Island, N.Y., to discuss the scope of the business.

The agreement between Greensill Capital and Bluestone included a list of predicted sales to various entities, some of which weren’t yet—and might never be—customers. According to the lawsuit, Greensill Capital provided Bluestone with a roster of companies that might be interested in its metallurgical coal, used to fuel blast furnaces at steel mills. The list had a presumed amount each customer could theoretically purchase, the credit Bluestone would receive for that supposed buyer, and when the mining company would have to make good on the debt.

According to the suit, over the next two years, each time Bluestone was scheduled to pay off its loans, Greensill Capital would roll them over for a small fee consisting solely of the interest due. For instance, when $15 million in loans matured in January 2019, Greensill Capital wired about $14.5 million to Bluestone, which then wired back $15 million—effectively paying only the $457,000 the miner owed in interest. Eventually, Greensill Capital stopped demanding such back-and-forth payments, requiring only that Bluestone send the interest due.

This is what the London company called a “cashless roll,” which Bluestone insists indicated that it was de facto long-term financing, even though it was never identified as such. If that’s true, it would have made the loans a riskier bet for the investors in the funds run by Credit Suisse, which had a mandate to invest in short-term financing. The more time a borrower has to pay back a debt, the more that can go wrong.

The pandemic put Bluestone, like many industrial businesses, under stress. In September 2020, according to the suit, when Jay Justice visited Hartley-Urquhart’s home, the Greensill executive assured him that the mining company wouldn’t be left “holding the bag” (i.e., forced to repay before it could afford to do so). By November, though, the tone from London was more contentious. Greensill Capital wanted its money back—as early as this summer. In December, Greensill Capital dispatched an executive to the Greenbrier, the palatial 710-room resort the Justice family owns, to deliver the message that the loans had to be paid, a demand Bluestone was in no position to accommodate. And because of the personal guarantees, Greensill Capital’s insistence on getting repaid immediately was threatening not only the viability of the mining company but also the fortune of the Justice family.

What had changed at Greensill Capital to make the company so concerned about getting its money back? Greensill Capital was under pressure on multiple fronts. A subsidiary of Tokio Marine, the Japanese company that insured Greensill Capital’s notes against default, had told the London firm that it wouldn’t renew coverage. The employee that had underwritten its contract had been fired the previous summer, and the insurance company had begun investigating the relationship between the former staffer and Greensill Capital, alarmed by the amount of risk it had taken on. Unbeknownst to the Justices, Greensill Capital on New Year’s Eve 2020 contacted accounting firm Grant Thornton to assess the firm’s options—including preparation for a potential insolvency filing.

Greensill Capital had a separate problem festering on the balance sheet of Greensill Bank, the German lender it owned, which pulled in funds from savers by offering some of the best deposit rates in the country. Investigators were threatening to shutter the bank, in part because its loan book was too concentrated with Gupta and his company, GFG. For a period, more than half the loans on Greensill Bank’s books were linked to Gupta. In the years after Greensill met Gupta in 2015, the London firm extended some $5 billion worth of credit, despite Gupta’s shaky track record as a borrower. In 2016, Goldman Sachs Group, Macquarie, and ICBC Standard Bank all questioned the veracity of documents Gupta had provided and stopped offering credit to his trading firm. As the older, name-brand lenders stepped away, Greensill Capital stepped in to fill the funding gap.

In 2019, GFG used Greensill Capital money to finance the €740 million ($877 million) purchase of a string of aging steel plants in places such as Romania, North Macedonia, and the Czech Republic. Although the loans had been secured against inventories at two of Gupta’s Australian businesses, Gupta shifted the funds to his company that was making the European acquisition. (Details of the deal were reported in a March Bloomberg News story based on corporate filings and interviews with two people with direct knowledge.) When the European Commission scrutinized the transaction, much of the money appeared to be cash rather than debt, making it look as if Gupta were putting up a far greater share of the price in cash than he really was. Once Gupta had the steelworks in hand, he used the assets to get a further €2.2 billion credit line from Greensill Capital.

As with Bluestone, many of the loans to GFG were backed by future payments from customers that hadn’t actually bought anything yet. Access to Greensill’s financing was critical to Gupta’s business, according to Lex Greensill in a statement to a court in the U.K. in March. He said he had been told by Gupta that GFG risked insolvency if Greensill Capital cut off its lending. Today, GFG says that its steel group is working closely with creditors to refinance to its debts and that it’s “pleased with the progress made” as markets for its steel, aluminum, and ore rebound.

As Greensill Capital extended itself, it had a key backer: SoftBank’s Son. The Japanese venture capital investor frequently lauded Greensill as an innovator, praising him in a meeting with the president of Indonesia as “the money guy,” and calling him an “artificial intelligence entrepreneur” in marketing materials. Greensill basked in the attention, boasting to staff members about his frequent conversations with the SoftBank founder.

SoftBank invested around $1.5 billion in the London firm in 2019. Greensill Capital said the investment would go toward acquisitions and new technology. Instead, as Lex Greensill later told London’s Financial News, the firm used much of the money to bolster the balance sheet of its German bank. That maneuver gave Greensill a financial institution in which he could warehouse less-attractive assets such as loans to Gupta and Bluestone until he could find investors willing to buy them. SoftBank also used Greensill Capital to finance some of its portfolio companies.

By some accounts, Greensill Capital was anything but the dynamic tech startup of its founder’s dreams. Lex Greensill claimed that with complex algorithms chewing through real-time information on sales and suppliers, his company could predict future cash flows with remarkable accuracy and quickly spot any change in a borrower’s creditworthiness. Press releases touted the ability of custom artificial intelligence programs to parse troves of data. In reality much of the company’s lending was based more on rudimentary forecasting, such as the list of potential customers that Greensill Capital presented to Bluestone. The firm used simple spreadsheets, according to several people familiar with the company’s systems speaking on the condition of anonymity; in the early days, much of the data was logged manually. A spokesman for Lex Greensill says the company employed 500 people classified as tech and data specialists—about half its workforce—and that its proprietary technology was “state of the art.”

To beef up its tech cred, Greensill Capital in 2019 purchased a pair of fintech startups called Earnd and Finacity. The former allowed staff early access to their paychecks. It had a pilot project with National Health Service nurses in the U.K., who could get an interest-free advance on their wages simply by tapping a button on an app; it was good public relations to back up the claim that Greensill was making finance fairer. Finacity did unsexy back-office work involved in packaging invoices into assets that can be sold to investors. Earnd has since been bought, and Finacity is heading toward a deal. 

Investigators, accountants, and prosecutors are now scrutinizing Greensill Capital’s balance sheets to determine what can be recovered from the firm’s loans. Greensill Bank has been seized by authorities, and Bafin, the German financial regulator, says it’s been unable to find evidence of receivables it had purchased from Gupta’s GFG. Prosecutors in Bremen have raided the offices of the bank and the homes of staff members. At least 20 towns in Germany that had deposited a total of more than €200 million at Greensill Bank face potential losses. Britain’s Serious Fraud Office is investigating Greensill Capital and GFG for financial malfeasance.

The collapse has prompted soul-searching at Credit Suisse, which is being investigated by Swiss regulators for its ties to Greensill. Bluestone says it’s in negotiations with Credit Suisse over restructuring its debts. And Tokio Marine is questioning the validity of its insurance contracts with Greensill Capital.

Lex Greensill himself hasn’t been named as a target of any government investigations into the company. But his life is changing. At the apex of his career, Greensill maintained a fleet of four private planes to support his and his executives’ globe-trotting lifestyle—hundreds of flights a year, to destinations both mundane and exotic, such as Liverpool, Ibiza, Bogotá, Bangkok, and Riyadh. (En route via Greensill’s leather-swathed Gulfstream to the Swiss ski resort of Davos for the 2019 World Economic Forum, David Cameron was overheard joking about the pleasures of flying “Lex Air.”) Greensill’s planes are grounded in Germany, seized by financial regulators for safekeeping.

Manchester Business School, where Greensill received an MBA in 2006, returned a £2.5 million ($3.4 million) donation intended to endow the Greensill Chair in Fintech. Finally, there’s the farm: His family’s farm issued a statement to the local weekly, Queensland Country Life, assuring neighbors that the collapse of Lex Greensill’s financial business would have no effect on its ability to provide quality produce. Read next: Forget Finance. Supply Chain Management Is the Pandemic Era’s Must-Have MBA Degree


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