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The ghost of Greensill will haunt the world of finance

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SoftBank Group Corp. Chairman and CEO Masayoshi Son and Credit Suisse AG Chairman Axel Lehmann might wish their respective companies had never met disgraced financier Lex Greensill.

But I hope they – and the financial sector as a whole – can learn from the scandal that followed.

Greensill’s charm, self-confidence and supposed ability to turn the supply chain finance business into a booming source of liquidity has seen Softbank and Credit Suisse see dollar signs, as Duncan Mavin’s new book (1) on the saga – “The Pyramid of Lies” – reveals.

For Son, whose Vision Fund dragged SoftBank to a recent record loss, taking a stake in Greensill was meant to be a fintech home run. It was a company claiming to mix old finance with new data tricks, growing at breakneck speed and apparently with enough cash to support dreams such as investing in a $34 billion new city. dollars in Borneo.

For Credit Suisse, which was desperate to move away from the financial trade and towards recurring income from high net worth individuals, investing clients’ money in Greensill assets was a way to join a network of influential billionaires and to offer big returns at low interest rates. world rate.

Unfortunately, Greensill Capital was built like a house of cards and collapsed when Covid-19 hit. Revelations of reckless lending and questionable conflicts of interest have spooked investors and insurers. The money ran out, Son’s prized “fintech” unicorn was soon worthless, and Credit Suisse’s wealthy clients were billions in the red.

There will no doubt be more revelations to come as Credit Suisse prepares legal action against SoftBank in hopes of recovering up to $3 billion – one of many legal battles that will take years to complete. solve. SoftBank called claims it misappropriated money owed to the bank’s customers “desperate”.

Still, Mavin’s book makes it clear that the cast of characters drawn into Greensill’s orbit have some serious work to do to minimize the risk of a similar explosion ever happening again. Many backers seemed too eager to buy what the self-absorbed, larger-than-life financier was selling, and they didn’t always do their homework. The book delights in exposing Greensill’s ridiculous assignments, including an oversized business card straight out of American Psycho.

“I think there are a lot of other Greensills waiting to perform and far too few people willing to do the right thing,” Mavin says.

Infectious hype is a recurring theme in the saga. Greensill rose at a time when retired bankers were joining startups instead of golfing, and low interest rates were pushing investment firms into riskier waters. The marketing pixie dust of the “fintech” label has diverted much attention to the reality that high growth and high returns in finance rarely come with high risk. As fintech valuations plummet, it’s not just SoftBank that needs a refresher.

The hype has also led traditional financial firms that have bought Greensill, often based on its slick pitch and connections, to ignore internal red flags. This has caused an internal crisis at asset manager GAM over its growing exposure to Greensill. Credit Suisse’s supply chain fund, meanwhile, arguably outsourced too much decision-making to Greensill and at one point didn’t even apply its own rules to the fund when it comes to credit insurance, a key part of Greensill’s downfall.

Regulators will need to show they can keep tabs on markets that appear safe and reliable, as they may be hiding significant risks. Supply chain finance is a business as old as banking, but it has been exploited by ultra-fast growing companies taking advantage of opacity and favorable accounting rules. In the end, Greensill was not only helping suppliers get paid sooner using invoices as collateral, but funding themselves on notional future business.

New US accounting standards starting next year that require more transparency in supply chain finance will hopefully inject more confidence in the industry.

And with governments playing a bigger role in business since the pandemic – even in a traditionally laissez-faire UK – politicians and their lobbying activities need to be held to a higher standard. Had David Cameron been successful in his intensive push to win government backing for Greensill – which Mavin humorously describes as the former prime minister’s attempt to prove his own worth to Lex – the British taxpayer might have been worse off.

Years of legal wrangling still await those caught up in the Greensill scandal. But as bankers, technicians and those who regulate them hit the beach this summer, it might be time to revisit how this pyramid of lies was built. It could be rebuilt one day.

More other writers at Bloomberg Opinion:

• The doctor won’t see you anymore: the crisis of the cost of survival in the United Kingdom: Thérèse Raphaël

• Facebook is doing something good for a change: Parmy Olson

• Britain’s summer of discontent is a story of poor planning: Martin Ivens

(1) Mavin was a staff writer for Bloomberg Opinion in 2016.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

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