German regulator files criminal complaint against Greensill Bank

German financial supervision has filed a criminal complaint against the management of Greensill Bank for alleged manipulation of the balance sheet, according to people briefed on the matter.

The complaint, filed with criminal prosecutors in Bremen, where the bank is based, comes as its parent company, Greensill, prepares to file for insolvency protection in the UK but transfers viable parts of the company at Apollo Global Management.

A deal with Apollo would likely wipe out Greensill shareholders such as SoftBank’s Vision Fund. The Japanese conglomerate’s $ 100 billion tech fund injected $ 1.5 billion into the company in 2019, but has already significantly reduced the value of its stake.

German officials’ decision on Wednesday complicates efforts to save parts of the Greensill Empire, a once high-profile supply chain finance group backed by SoftBank and advised by former UK Prime Minister David Cameron .

The complaint concerns the interim findings of a forensic investigation into Greensill Bank’s balance sheet that audit firm KPMG began at BaFin’s request late last year. Manipulation of the balance sheet can be punished by up to three years in prison under German law.

The BaFin, the German financial watchdog, also imposed a moratorium on the bank’s activities on Wednesday afternoon, thus freezing its operations. In one of the following stages, the lender will be liquidated.

“There is an imminent risk that the bank will become over-indebted”, BaFin said in a statement, adding that the lender was “closed for business with customers” and would be prohibited from accepting payments.

About 85% of the lender’s 3.5 billion euros in deposits come from retail investors and are insured by the German public deposit insurance system, but institutional depositors are on the verge of taking a 500 million hit euros.

KPMG’s audit raised concerns about the bank’s level of exposure to companies linked to metals tycoon Sanjeev Gupta, who is not the subject of the complaint and has not been charged with wrongdoing .

Greensill Bank said it had received “extensive advice” from German and UK law firms on the classification of receivable assets, and that auditors had reviewed and approved the classification.

“For the avoidance of doubt, Greensill Bank has always been transparent with its regulators and auditors on its approach to asset classification and the methodologies for determining those classifications,” he said, adding that BaFin had not done “no mention of criminal charges”. when he imposed the moratorium.

Gupta’s GFG Alliance declined to comment. A spokesperson for Bremen prosecutors confirmed that the complaint had been received. KPMG declined to comment.

BaFin is also concerned about the auditor of lender Ebner Stolz, a mid-size partnership based in Stuttgart. The watchdog will report Ebner Stolz to the German watchdog Apas, a person briefed on the matter told the FT.

Ebner Stolz said due to confidentiality obligations he has not commented on ongoing audit mandates. “We will immediately contact the authorities to offer our cooperation in clarifying the facts within our legal possibilities,” said Holger Jenzen, partner at Ebner Stolz.

KPMG’s investigation focused on the “receivables” financing facilities that the bank provided to Gupta companies, according to people familiar with the investigation, which are designed to be repaid by clients of a group.

This allowed the bank to classify the risk as being shared among a number of different companies, rather than a single large exposure to Gupta’s business, which could have broken the rules.

During its investigation, KPMG struggled to verify the existence of some of these invoices, said several people familiar with the investigation. He also determined that the “prepaid debt” facilities, under which the debt would be repaid by hypothetical future invoices, could be interpreted as an unsecured loan to the Gupta companies.

Gupta has a close relationship with Lex Greensill, the 44-year-old Australian banker who founded the finance company and previously held a stake in Greensill Capital.

The lender was founded in 1927 in Bremen as Nordfinanz Bank AG and renamed Greensill in 2014, when it was acquired by Greensill Capital. Subsequently, the balance sheet of the small regional lender grew rapidly.

BaFin said in a statement that Greensill Bank was “not systemically important” and that “the institution’s distress did not threaten financial stability”.

Greensill Bank’s loan portfolio is around € 3.5 billion, according to people familiar with its balance sheet, and more than € 2 billion is in debt financing related to Gupta’s activities.

In addition, the bank holds UK government guaranteed loans to entities linked to Gupta, the Indian-born businessman, whom the Financial Times revealed last year had been provided by Greensill. German officials fear that the British government could cancel these guarantees.

German regulators’ concerns about Greensill Bank were first triggered by an FT investigation in Gupta’s finances released a year ago, according to people familiar with the matter.

The FT’s investigation highlighted the amount of funding the British industrialist’s companies had drawn from the Bremen-based bank, while developer that Gupta’s own UK lender – Wyelands Bank – had funded its larger business empire through a network of shell companies.

Wyelands – which is named after a Welsh country estate that Gupta owns with his wife – said on Wednesday it would fully reimburse its own retail depositors after a £ 75million injection from Gupta.

Comments are closed.