This month’s book review is ‘Pyramid of Lies’ the story of the meteoric rise and spectacular fall of Lex Greensill and Greensill Capital.
Greensill Capital was a financial firm that disrupted global finance and entangled the highest levels of British politics. Greensill, an Australian farmer’s son, transformed himself into a billionaire banker before his empire collapsed in 2021, leaving a trail of financial and political wreckage.
This book tells the story of Lex as a figure driven by ambition and a desire for prestige. His obsession with status is evident in details like oversized, Smythson designed business cards, symbolising his need to stand out in elite circles.
What was Supply Chain Finance?
At its heart, Greensill Capital was a financial firm specialising in supply chain finance, offering early payments to suppliers on behalf of buyers. It claimed to innovate by packaging these debts into securities for investment. However, it lent heavily to high-risk clients, often on projected and not actual invoices, and relied on fragile insurance backing. Its model obscured financial realities, creating systemic risk. When insurance was withdrawn and key clients defaulted, Greensill collapsed, triggering a major political and financial scandal.
Supply chain finance itself is a legitimate financial product, but Greensill exploited it by extending risky loans to companies with dubious creditworthiness and then masked the true nature of his operations.
Some of the narrative focuses on Greensill’s connections with political figures, notably former UK Prime Minister David Cameron. Cameron’s lobbying efforts on behalf of Greensill Capital, including attempts to secure taxpayer-backed loans during the COVID-19 pandemic, highlight the blurred lines between business and politics.
Some of the key stories include:
The GFG Alliance and Sanjeev Gupta
Greensill Capital extended approximately $5 billion in financing to the GFG Alliance, a conglomerate led by steel magnate Sanjeev Gupta. This relationship was pivotal to Greensill’s operations, as Gupta’s companies were significant clients. However, concerns arose due to the lack of consolidated accounts and the opaque financial structures within GFG. German regulators scrutinised Greensill Bank’s exposure to GFG, leading to increased regulatory pressure. The eventual withdrawal of insurance coverage and regulatory interventions contributed to Greensill’s collapse.
David Cameron’s Lobbying Efforts
Former UK Prime Minister David Cameron joined Greensill Capital as an advisor after leaving office. He lobbied senior government officials, including Chancellor Rishi Sunak, to grant Greensill access to the UK government’s COVID-19 loan schemes. Cameron’s involvement raised ethical questions about the revolving door between politics and business. Despite his efforts, the government ultimately declined Greensill’s requests, and the episode led to a broader inquiry into lobbying practices.
The Collapse of Carillion
Carillion, a major UK construction and facilities management company, utilised Greensill’s supply chain finance services. By moving debts off its balance sheet through these arrangements, Carillion appeared more financially stable than it was. However, this obfuscation contributed to its collapse in 2018, leaving behind £7 billion in liabilities. Greensill’s role in facilitating this financial chemistry highlighted the risks associated with opaque financing structures.
Abengoa’s Financial Troubles
Spanish energy company Abengoa received financing from Greensill Capital, despite its precarious financial position. The company eventually declared insolvency in 2021, owing €9 billion. Greensill’s decision to finance such a high-risk entity underscored its aggressive lending practices and the potential pitfalls of inadequate due diligence.
Insurance Withdrawal and Collapse
A critical factor in Greensill’s downfall was the withdrawal of trade credit insurance. Initially, Greensill relied on insurance from The Bond & Credit Co. (TBCC) to underwrite its supply chain finance products. However, when TBCC was acquired by a Japanese insurer, the new owners reassessed the risk and decided to cease coverage. This loss of insurance made Greensill’s financial products unviable, leading to a liquidity crisis and eventual insolvency.
SoftBank’s Investment and Circular Financing
SoftBank’s Vision Fund invested $800 million in Greensill Capital, seeking high returns in the fintech sector. However, a significant portion of Greensill’s financing was directed toward companies also backed by SoftBank, creating a circular flow of funds. This interdependency raised concerns about conflicts of interest and the sustainability of such financial arrangements.
All in all, a decent read and one where you will shake your head time and time again thinking how it did not come crashing down sooner.
Lex Greensill has been back in the news quite recently as the government is at the High Court seeking to disqualify him from managing a UK company for 12 years. The Secretary of State for Business and Trade has issued disqualification legal proceedings against Greensill after the Insolvency Service investigated various companies within the group.
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