Finance

Here’s how SoftBank funds meant for Credit Suisse investors ended up at Greensill Bank

When SoftBank made a last ditch-infusion of $440m into Greensill Capital last November, the money was earmarked to pay off investors in Credit Suisse investment funds, according to people familiar with the deal.

But the cash never made it to the Swiss bank. Greensill put the money into its own German banking unit instead, according to a report released Thursday from the bankruptcy administrators for Greensill’s Australian parent company and some of the people familiar with the deal.

That detour is complicating Credit Suisse’s efforts to recover money owed to investors after Greensill collapsed into bankruptcy last month, according to people familiar with the matter.

Credit Suisse this week identified $2.3bn in problematic loans in funds it ran with Greensill, including the $440m loan.

The incident shows the challenge in unravelling Greensill’s complicated web of transactions and how Greensill moved funds around to plug holes in its operations, according to the people familiar with the matter.

Greensill was founded in 2011 by former Morgan Stanley and Citigroup banker Lex Greensill. The company provided clients with supply-chain finance, a kind of short-term lending allowing companies to stretch out the time they have to pay their bills.

Greensill packed those loans into securities called notes and sold them to third parties, including a $10bn suite of funds run by Credit Suisse. In effect, Credit Suisse’s funds operated as off-balance sheet financing arms for Greensill.

The $440m from SoftBank was related to a loan Greensill made to Katerra, a US startup that aims to make the construction of buildings more efficient, The Wall Street Journal previously reported. Like Greensill, Katerra was backed by SoftBank’s Vision Fund, which encouraged collaboration between its portfolio companies. Greensill acted as a lender that could facilitate growth elsewhere in the SoftBank stable.

The loan to Katerra was packaged up into notes and sold to investors in a Credit Suisse fund that exclusively bought assets sourced by Greensill. When Katerra ran into financial difficulties last year, Greensill forgave the loan.

To make up for the Katerra loan, SoftBank invested $440m into Greensill, according to people familiar with the transaction. SoftBank executives expected Greensill to send the money directly to Credit Suisse, according to the people.

The amount owed to the Credit Suisse funds related to the Katerra loan was due for repayment in mid-March, according to people familiar with the matter.

Greensill put the proceeds of the SoftBank investment in a bank it owned in Bremen, Germany, according to the administrator’s report. The report said Greensill had used money it received from SoftBank, including the $440 million, to boost its bank’s capital position and fund Greensill’s overall operations.

BaFin, the German banking regulator, had for months pressed Greensill over worries it had too many loans tied to UK steel magnate Sanjeev Gupta, the Journal has previously reported. By adding capital to the bank, Greensill was effectively reducing its relative exposure to Gupta’s companies, according to one of the people.

In January, some senior executives at Greensill were concerned that the $440m hadn’t made it to Credit Suisse, according to people familiar with Greensill’s operations.

Credit Suisse froze its Greensill funds on March 1, and Greensill plunged into insolvency days later.

Credit Suisse is trying to recover the lost money on behalf of the investors in the funds. Katerra doesn’t believe it is on the hook to pay back Credit Suisse because Greensill forgave the loan, according to people familiar with the loan.

BaFin took over Greensill Bank in March after an audit was unable to find evidence of collateral backing up loans to Gupta’s companies. The bank was later declared insolvent.

Write to Julie Steinberg at [email protected] and Duncan Mavin at [email protected]

This article was published by Dow Jones NEWPLUS

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