IAG 10% fall and trade halt – Greensill

Greensill is a trade financier founded by Lex Greensill in 2011. Now it is under administration in Australia and the UK.

Greensill is a trade financier founded by Lex Greensill in 2011. Now it is under administration in Australia and the UK.

They were previously involved with providing funding for fraudulent UAE health insurer ‘NMC Health’ and werenvolved in the collapse of ‘global asset management’ funds (GAM) that was in the media.

Greensill is now insolvent after Credit Suisse abandoned €10 billion of supply chain finance funds linked to the group. Germany’s supervisory authority BaFin also froze Greensill’s Bremen-based bank and filed a criminal complaint alleging balance sheet manipulation. Mr Greensill acquired the bank in 2014 to operate his receivables-lending business.

Basically, Greensill sourced funding from Credit Suisse then delivered trade finance to other businesses. Part of Credit Suisse’s terms for lending were that the company maintained credit insurance.

IAG and Tokio Marine had been insuring the business but have since now ceased (there are ongoing court cases around this issue). The insurance was written by a broker through an entity ‘The Bond and Credit Co.’ (BCC) which was jointly owned by IAG and Tokio Marine. 

IAG sold its stake in BCC to Tokio Marine on 9th of April 2019. As part of a transition arrangement after the April sale of BCC, new policies were underwritten by IAL (Insurance Australia Limited, a subsidiary of IAG) from the date of sale up to 30 June 2019 and Tokio Marine & Nichido Fire Insurance Co. Ltd (Tokio Marine) retained the risk for these policies, net of reinsurance.

A Credit Suisse Supply Chain Finance Fund newsletter indicates that ‘Insurance Australia Ltd’ is insuring 56.1% of its ‘Supply Chain Finance Fund’, and Tokio Marine is financing 18.5%. However it is possible this information was not updated to reflect IAG’s sale of BCC to Tokio Marine prior to publication on 30 June 2020.

Greensill was trying to restore around $4.6 billion in credit insurance as the loss of coverage would trigger a wave of insolvencies for Greensill and it’s clients.

Greensill provides funding to Sanjeev Gupta’s “Gupta Family Group Alliance” (GFG Alliance) who owns Whyalla steelworks in South Australia. The steel company could collapse into insolvency if funding was cut. Greensill’s exposure to Gupta was massive and has been reported to be as high as $5.4 billion. The GFG Alliance also owns steelworks across the UK.

There are large potential flow on effects to Tokio Marine and IAG (insurers) if one of the insurers is found to be liable for insuring Greensill’s credit. Otherwise whatever losses arise from all of this could be borne by Credit Suisse.

On the 9th of March 2021 at 2:08pm, IAG has released a statement highlighting that they have no net insurance exposure to Greensill trade credit policies sold through BCC, claiming that Tokio Marine retained the risk for these policies from 30th of June 2019.

However, this isn’t over yet as there are lots of unknowns at this stage, and lots of potential court cases as Tokio Marine, IAG, and Greensill all try to shift blame and liability away from themselves.

The crisis at Greensill has also triggered alerts at the Bank of England and the European Central Bank. The BoE’s Prudential Regulation Authority (PRA) has asked banks to reveal how much of their business is linked to Greensill or GFG Alliance.

While Greensill’s parent company is registered in Bundaberg, QLD,  the majority of its business is based in London, where it employs about 600 of its 1,000 global staff. Interestingly, Greensill has the ex-PM of UK David Cameron as one of its advisors.




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