The UK Treasury select committee’s enquiry into the lessons from Greensill subjected the founder, Lex Greensill, to a three-hour grilling. The public got to hear from the man himself and listen to him defend his business model, which was met with an onslaught of criticism.
In his evidence to the 11 members of parliament (MPs) who comprise the UK’s Treasury select committee, Lex Greensill appeared unfazed by the criticism he received. He portrayed himself as a pioneer of supply chain finance who was helping real businesses and the real economy. And he maintained that what his firm was doing was the future of finance.
“Taking real-time information out of corporate accounting systems and using that information to make credit decisions to small businesses is absolutely the future,” said Lex Greensill. “But the way I did it has flaws,” he added.
“Your company is hardly an advertisement,” retorted MP Rushanara Ali.
This comment was typical of the hostile questioning Greensill was subjected to during the course of the hearing. The session, however, opened with a more measured tone in which the committee’s chair, Mel Stride, sought to establish the facts about the collapse of Greensill Capital.
When asked what went wrong, Greensill said the ultimate failure was because of Tokio Marine’s decision to withdraw its insurance cover. This insurance was underpinning the ability of Greensill to sell its loans to a fund at Credit Suisse. Without the insurance to cover the underlying assets, investors were no longer willing to invest, and so Greensill lost a source of funding.
He also gave other reasons for the failure of Greensill: The impact of COVID; a concentration of customers, which Greensill said was “a source of regret”; and the actions of the regulator in Germany on Greensill Bank that affected its ability to support a key customer.
Many of the MPs on the select committee, however, were not impressed with such an explanation. On the use of Greensill’s future receivables, MP Felicity Buchan said, “In my mind there is no such thing as future receivables.” She continued: “There is no transparency in the business model. It is unsecured lending but being dressed up as supply chain finance.”
In his answers, Greensill at times came across as evasive, perhaps disingenuous, leading Ali to accuse him of “gaslighting” the committee. She asked him why the public should believe that it was the withdrawal of the insurance that was to blame for the failure, and not the opaque business model that Buchan had described. To this, Greensill answered that they had taken cash flow data from accounting systems from clients and made that information to investors “so they are able to invest in the real economy in a way that only banks could do before. They did business with us because they got a better deal from us than they could get from their banks. They voted with their feet,” he said. “We ultimately failed.”
Ali took issue with the concentration of customers, and also emphasised that it was unsecured lending, not supply chain finance. “You have not helped businesses. You have damaged the reputation of legitimate supply chain finance,” she said. “It smacks of fraudulent behaviour… the likes of Madoff – that is what it smacks of,” she added.
Greensill defended himself, and his business model. “No one had heard of supply chain finance [before]. Now [banks] offer it like a chequing account to a corporate,” he said. “The business model we developed has been copied by financial institutions around the world.” Ali countered, “Your scheme does something quite different from supply chain finance,” adding that taxpayers had lost billions as a result.
Then it was MP Siobhain McDonagh’s turn, “Mr Greensill, are you a fraudster?” She then referred to the lending “against transactions that have never happened… an imaginary thing” and questioned whether this in fact was the definition of fraud. Greensill maintained that everything was properly described to investors: “Our investors understood what they were investing in,” he said.
