Greensill, the company specializing in short-term loans, went into liquidation on April 22. The company's collapse caused widespread concern in the financial sector and industry alike. In Italy, for example, Aigis Banca has also just been placed into liquidation.
Suspicions of fraud
Greensill, founded in London in 2011, specializes in financing payment deadlines, in a scheme known as reverse factoring. In practical terms, the company offers to pay its corporate clients' supplier invoices on their behalf. It then becomes the owner of the receivables, transforming them into financial securities before reselling them to investors interested in high short-term returns. In other words, Greensill applies the principle of securitization, which was at the root of the 2008 subprime crisis.
The financial company's business model relies entirely on the ability of insurers to cover the risk of customer default. Consequently, if insurers amplify the risk and begin to express doubts about the quality of debt securities, the chain of trust is broken, jeopardizing Greensill. This is what happened in March whenan insurer refused to renew its coverage of transactions. This decision generated suspicions of fraud and doubts about the valuation of its assets. Other insurers followed suit, bankrupting the short-term loan specialist.
Collateral victims of the Greensill bankruptcy
The Greensill affair had repercussions on other companies, including Aigis Banca, which had purchased several of Greensill's investment products. The company was placed in liquidation at the request of the Italian Treasury. The Venice-based Ifis bank bought back its assets for a symbolic one euro. It will recover a total of almost 300 million euros in corporate loans, 135 million euros in sovereign bonds and 440 million euros in deposits. To ensure that the transaction runs smoothly and that customers' money is protected, the Italian deposit guarantee fund will also contribute 49 million euros. So, while the collapse of Aigis Banca does not pose any particular risk to the Italian banking system, it does demonstrate the deflagration caused by Greensill.
The Italian bank is not the only victim in this affair. The equilibrium of CFG, the steel giant, which was largely financed by Greensill, is threatened, as is the future of certain subsidiaries such as Ascovale and Hayange in France. Liberty Steel claims to be looking for buyers for its sawmill in Saint-Saulve and its rail plant in Moselle. In addition to Liberty Steel, the bankruptcy of Greensill has put other activities of the Sanjeev Gupta Group in difficulty. The Alvance group's three automotive equipment suppliers, for example, were placed in compulsory liquidation in April. Alvance Poitou Fonte, Alvance Aluminium Poitou and Aluminium Wheels employ a total of almost 850 people.
Greensill's collapse shook many companies around the world and had political consequences.