The embattled Australian financier didn’t just manage billions together with the Swiss bank – he was also a weighty client as well. Credit Suisse stuck with Lex Greensill long after warning signs emerged.

It seems similar to a light breeze hitting a house of cards: Lex Greensill’s eponymous firm managed close to $8 billion for Credit Suisse and enjoyed backing from weighty investors including Softbank.

Until Monday, when the Swiss bank suddenly pulled the plug on Greensill Capital, a move replicated on Tuesday by GAM, another Swiss asset manager with nearly $800 million co-managed by Greensill.

Switzerland’s Finma said, «we are in touch with Credit Suisse and our partner regulators in this matter.» Greensill is heading for insolvency in the U.K, the «Financial Times» (behind paywall) reported on Wednesday, with U.S. private equity giant Apollo poised to snap up some assets out of administration.

Swiss Parallels

The long-running turbulence around Greensill Capital offered up several red flags along the way, starting with GAM’s involvement with the firm at a series of flagship bond funds. GAM shut the funds in 2018 and was subsequently swept up in a wave of withdrawals and losses it is only now showing signs of emerging from.

The Swiss asset manager’s problems also centered around instruments involving Britain’s «savior of steel,» Sanjeev Gupta and GFG Alliance. The company was reportedly also the primary cause for concern at Credit Suisse, which effectively sealed Greensill’s fate by pulling out.

Ample Red Flags

A series of insolvencies early last year served as red flags: the «FT» reported U.K. healthcare group NMC Health, property firm, Bright House, and Singaporean commodities trading house Agritrade in its reporting.

All three firms popped up in Credit Suisse’s supply chain fund, according to the pink paper, with outstanding financing of nearly $120 million as of 18 months ago. Thanks to hedging and other mitigation measures, Greensill and Credit Suisse were reportedly able to avert losses.

Knotty Business Ties

Observers also grew hinky over the knotty ties between Softbank, Greensill, and Credit Suisse, as finews.asia reported. The Japanese technology firm unwound some of those ties, which were perceived as a conflict of interest, last summer.

In August, German finance regulator Bafin began looking at Greensill Bank AG, a Bremen-based lender formerly known as NordFinanz that Greensill had bought (and renamed) in 2014. The German bank’s balance sheet ballooned after Softbank plowed $1.5 billion into Greensill. Bafin was reportedly particularly interested in Greensill’s financing for GFG and Gupta.

Meanwhile, Greensill Capital wanted to take in up to $600 million during this quarter, in preparation for a public listing later this year. The injection didn’t happen, despite backing from Softbank and weighty U.S. investor General Atlantic.

Circular Relations

Through this, Credit Suisse stuck with the partnership and now faces tricky discussions with its professional investors. The wealth manager maintained more than the asset management ties with Greensill, according to reporting by the «FT» (behind paywall): Greensill Capital took a $140 million bridge loan from the bank, meant to tide the company over until its listing.

The outlet also reported Lex Greensill is also a private banking client at Credit Suisse. Though unconfirmable, the 44-year-old ex-investment banker would fit Credit Suisse’s efforts as the «entrepreneur’s bank,» a pattern that hasn’t always served it so well.

Lu Zhengyao, the billionaire founder of Luckin Coffee, was an ideal client for the Swiss bank – until he wasn’t. Softbank founder Masayoshi Son also reportedly banked with Credit Suisse.

Lucrative Returns 

Greensill’s dismantling also puts the bank out of the running for the initial public offering, which Credit Suisse would have reportedly acted as book-runner on. A spokesman for Credit Suisse declined to comment on Greensill or the bank’s touch-points with the firm.

The perhaps most painful element of the Greensill saga for Credit Suisse is that its asset management arm stuck with the supply chain finance strategy despite several warning markers. Last year, a riskier Greensill fund returned more than six percent, a far better performance than other debt-based investments.

According to the instrument’s risk profile, investors knew of the risk of default within the fund’s portfolio companies: several tranches were even insured against this (including, reportedly, at Greensill’s bank in Germany). The freezing of funds nevertheless represents an unpleasant surprise to its investors.

Reporting by Samuel Gerber and Katharina Bart