The potential collapse of Greensill Capital could put many small businesses and thousands of jobs at risk. The supply-chain financier’s troubles highlight overlooked risks in the system.
Greensill Capital has become a dominant player in supply chain finance, a once-staid method of corporate funding that exploded in popularity over the past decade. Lex Greensill has become a dominant figure in an increasingly important, corner of finance. But now, some of his biggest backers have severed ties.
So, what has gone wrong?
Using techniques mastered by the former "slicers-and-dicers" of subprime mortgages, Greesill transformed the bills it took on into bond-like investments. These could be sold to outside investors, such as hedge funds, desperate to find some yield in a low-interest world. As long as the customers kept settling their invoices, a tidy profit could be made for investors—and the financiers behind all the alchemy. By 2019 Greensill claimed to have arranged financing worth more than $140bn to over 10m customers.
Questions over whether the money would indeed keep flowing were never far away. As concerns mounted over the creditworthiness of the companies Greensill had to collect money from, the value of the bonds underpinned by the invoices wobbled. On March 1st Credit Suisse froze $10bn of funds stuffed with paper sourced by Greensill. The Swiss investment bank warned of “considerable uncertainties” with respect to the valuation of the bonds linked to Greensill.
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