09 March 2021

SoftBank-Funded ……… Is Never a Good Start for a Sentence

It is remarkable just how many enterprises that Softbank funds are fraudulent, criminal, or fraud and criminality adjacent.

When one looks at their investment targets, like WeWork, Uber, and DoorDash, which are basically criminal enterprises, with defrauding investors, evading transportation and safety regulations, and stealing from delivery boys (respectively) being central to their business models.

And now another SoftFank funded dodgy outfit has blown up, Greensill, which financed supply chains.

It's model was to pay suppliers immediately at a discount, and then collect the difference when the large firms actually buying the stuff paid on a 90 day, and frequently longer, cycle. 

Its finances were sufficiently sketchy that their insurer stopped writing them policies, and then the house of cards collapsed:

Supply chain finance disruptor Greensill is undone by its own financial alchemy, putting at risk thousands of jobs in the UK, Australia and the EU. The timing could not be worse for already buckling supply chains.

Disruptor seems to be a synonym for criminality and ignoring the lessons of finance learned over more than 500 years of fractional reserve banking.

On Monday, the supply chain finance firm Greensill Capital filed for insolvency after defaulting on a $140 million loan it owes to Credit Suisse. Its parent company in Australia had already filed for insolvency there. According to UK court documents, Greensill had “fallen into severe financial distress” and can no longer pay off its debts. Over the past week many of the company’s directors have been frantically jumping ship, including its chairman Maurice Thompson, Australia’s former foreign minister Julie Bishop and former Morgan Stanley executive David Brierwood.

The firm has been in trouble for some time, as I warned in a previous NC post. A number of its client companies already collapsed in 2020. In the aftermath attention switched to the financial menage á trois Greensill had formed with its primary backer, Soft Bank, and Swiss mega-lender Credit Suisse. Greensill was also under investigation by German banking regulator BaFin and the Association of German Banks, an industry group, over its German subsidiary Greensill Bank’s huge exposure to a single client: U.K.-based steel magnate Sanjeev Gupta.

Yep, SoftBank.  

When you want to get in on a fraud, pump it up, and get out leaving suckers holding the bag.

Greensill’s fall from grace was as spectacular as its meteoric rise, writes the FT‘s John Plender:
Greensill Capital went from nothing in 2011, when Lex Greensill abandoned a big-bank career, doing global supply chain financing at Morgan Stanley and Citibank, to go it alone. By 2019 this upstart non-bank says it had extended $US143 billion ($185.5 billion) of financing to 10m-plus customers and suppliers in 175 countries. Its founder also notched up powerful contacts in government and hired former UK prime minister David Cameron as an adviser.

Yeah, hiring David Cameron as an adviser is another tell that they are relying on smoke and mirrors more than anything else. 

It turns out that the model Greensill used was "Working" in the short term because it allowed companies to cook the books:

For large companies the advantages are twofold: they get to preserve cash on-hand by extending payment terms with vendors. They can also record the amount they owe to the supply chain finance firm or bank as accounts payable on the balance sheet rather than as debt. This makes their liquidity position appear healthier than it actually is. And that can be dangerous. Companies can conceal the true size of their debt for longer, leaving investors and creditors bearing bigger losses when they finally collapse, as happened with Spanish green energy giant Abengoa in 2015, UK outsourcing giant Carillion in 2018 and NMC Health, the former FTSE 100 private hospital company, in 2020.
They then repackaged and resold the debt, but this was dependent on these bonds being insured, and when their insurer decided to stop writing policies, and the debt became profoundly unattractive to put it mildly. so the house of cards collapsed.

Once again, though, the principals of the firm will be fine, but this collapse is ricocheting around the trans-national supply chain, and we don't know when this game of musical chairs will end.

If this sounds familiar to you, it's because it's rather similar like Bear Stearns in 2008.

One hopes that the repercussions are less severe.


Tim Boudreau said...

Disruptor = software mediated monopoly, every time.

Matthew Saroff said...

I disagree, Disrupter = law breaker, every time.

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