Court appoints insolvency manager for Greensill Bank

A German court appointed an insolvency administrator to Greensill Bank on Tuesday, as requested by BaFin, Germany's previously criticized financial regulator.

Specialist lawyer Michael Frege will wind up the bank, reportedly with €3.6 billion ($4.3 billion) at stake from depositors attracted by margins above Europe's negative interest rates.

The previously obscure Bremen bank entered insolvency last week after Greensill Capital, a Britain-Australian financier headquartered in London, lost insurance coverage for its short-term debt repackaging business.

That financial service was used by industrial clients, whereby Greensill transformed their supply-chain debts into complex products sold to big investors.

Customers, mostly private, lay hopes in Germany's statutory banking sector guarantee system for personal deposits of up to €100,000 each.

Reuters, citing the German BdB banking federation, reports that the Bremen bank is a system member, with likely restitution put at €3.1 billion, the second-highest in Germany — since Frege acted for creditors snagged by in the 2008 crsh of the US's Lehman Brothers financial services company. 

But fears are held by some 30 municipalities about placements that now total €328 million, according to the tagesgeldvergleich, a German portal for short-term deposits.

Deposit exposure despite expertise

Among the institutional investors exposed are the municipalities of Monheim, near Düsseldorf, and Eschborn, near Frankfurt, two German financial hubs, but alsoBad Dürrheim, a town of 13,400 people near the Black Forest.

Germany's state of Thuringia has also disclosed that it is a Greensill Bank customer.

For watchdog BaFin, already facing scrutiny in parliament over Germany's Wirecard scandal, the Greensill case was again "not a good show," said Michael Peters of Finanzwende (finance turnaround), a citizens' movement.

"After Wirecard we have the next billion-euro scandal," Peters said, asserting that BaFin's scrutiny came too late instead of being proactive toward "shadow banks."

A sluggish response to the private Bremen bank has been denied by BaFin's overseers in Bonn, who suspended its customer transactions on March 3, warning of imminent risks.

BaFin says it began examining the private bank in early 2020 and appointed a special commissioner in January 2021, but under secrecy required of it by law. 

Echoes of US subprime debacle?

That model had "echoes of the repackaged US subprime debt that precipitated the 2008 global financial crisis," noted the French news agency AFP last week.

One Greensill client, steelmaking giant GFG Alliance, owned by Indian-British magnate Sanjeev Gupta, said on Monday it was pausing some UK activities to preserve cash. GFG also operates three large steel sites in France.

AFP citied Frankfurt-based investment lawyer Klaus Nieding on Tuesday as saying fixed-term deposits collected by Greensill Bank in Bremen were used to finance the parent Greensill Capital's transactions.

Credit Suisse also affected

From Zurich, Credit Suisse said it too "will incur a charge" over financial notes it purchased from the British firm Greensill and marketed to its clients.

Greensill founder Lex Greensill in a London court documents filed early last week, cited by Reuters, said he had kept senior individuals at Credit Suisse informed about the firm's insurance coverage in the "weeks" leading up to its British involvency application.

Without that insurance, Greensill was no longer able to sell notes backed by debts to investors, nor fund clients such as Gupta's GFG, reported Reuters, citing London court documentation.

ipj/aw (Reuters, AFP, dpa)